Pritzker lays out proposal for 'fair tax'
Governor estimates 97 percent of taxpayers would see reductions; six brackets would max out at 7.95 percent for millionaires
Gov. Pritzker unveiled his proposal for a “fair tax” Thursday. (One Illinois/Ted Cox)
By Ted Cox
Gov. Pritzker laid out his proposal for a “fair tax” Thursday, with estimates that 97 percent of Illinois taxpayers would benefit with reductions.
Pritzker released his tax proposal Thursday ahead of a meeting with legislators. It would create six tax brackets, with those earning under $100,000 getting a reduction on the state’s current flat tax rate of 4.95 percent. Taxpayers making between $100,000 and $250,000 would see that tax rate hold steady, but with a 20 percent increase in the property-tax credit providing additional relief.
Those making more than $250,000 would see their tax rate rise to 7.75 percent, with brackets maxing out at 7.95 percent for those earning more than $1 million.
The corporate income-tax rate would likewise be set at 7.95 percent.
According to the Governor’s Office, that would provide $3.4 billion in additional state revenue, while reducing taxes for 97.3 percent of filers.
In addition to the $100 million increase in the property-tax credit, there would also be a $100-a-child tax credit for single filers making up to $40,000, scaled back slightly but still applicable to those making $80,000 and couples making under $100,000.
In a news release, Pritzker’s office called the proposal “the beginning of negotiations with the General Assembly.” It also launched the push to amend the state constitution to allow such a graduated income tax.
In remarks later in the day in Springfield, Pritzker called the flat tax “unfair to the middle class and those who are striving to get to the middle class.” He said his fair tax was “a better and more fair way” to raise needed revenue “so we can finally put Illinois on course toward firm fiscal footing.”
According to the proposal, 27.2 percent of Illinoisans make $10,000 or less a year, and they would see their tax rate cut to 4.75 percent. The majority of Illinois taxpayers, 58.9 percent, make between $10,000 and $100,000, and their tax rate would drop to 4.9 percent. From there, those making up to $250,000, 11.1 percent of filers, would see their tax rate hold steady at 4.95 percent, but would likely benefit from the increased property-tax credit.
Those making up to $500,000, 1.9 percent of Illinois taxpayers, would see their tax rate rise to 7.75 percent, with those making up to $1 million, 0.6 percent of the population, paying 7.85 percent, and those making more than $1 million, 0.3 percent of taxpayers, paying the maximum 7.95 percent.
The Governor’s Office also included a series of examples for taxpayers at various levels. A single parent of two kids making $17,160 and renting would see a $220 benefit, most of that coming from the child tax credit. A couple with two kids earning $61,000 and owning their home, paying $3,500 in property taxes, would see a $271 gain. A couple making $125,000 and with one child and paying $5,000 in property taxes would see a $115 benefit. A couple making $250,000 and with no kids, paying $8,000 in property taxes, would nonetheless see a $145 gain.
A couple making $500,000 with two kids and paying $16,000 in property taxes would pay $6,526 more a year, while a couple making $5 million with one child and paying $25,000 in property taxes would pay $150,000 more to the state.
The proposal released Thursday made no reference to making changes in the Earned Income Tax Credit for low-wage earners. It’s actually quite similar to a projection performed by the Center for Tax and Budget Accountability. Frank Manzo IV of the Illinois Economic Policy Institute testified before the General Assembly on that proposal last year, saying that the state could cut the tax rate to 4.5 percent for anyone making less than $100,000, keep it level at 4.95 percent for those making $100,000 to $300,000, and create three brackets ranging from 8 to 9.85 percent for those making more than that. That, he added, “would cut taxes for 98 percent of Illinois taxpayers, raise them on the richest 2 percent of Illinois tax filers earning $314,000 or more, and generate about $2 billion in revenue to help close the state’s structural deficit.”
The Pritzker plan is projected to raise state revenues more than that.
As Pritzker previously explained in his first budget address last month, the alternatives are not appealing. With the state facing a multi-billion-dollar structural deficit, with $15 billion in unpaid bills and $1.25 billion in late-payment interest penalties from Gov. Rauner’s two-year budget impasse with the General Assembly, Pritzker said it was having a “destabilizing effect” on the state economy. The only budget cuts to be had are in so-called discretionary spending on education, law enforcement, and social services, which would have to be slashed 15 percent across the board. Or, if a flat tax and current spending were maintained, the tax rate would have to rise for all Illinois filers from 4.95 to 5.95 percent.
According to projections, a single mom making $61,000 would pay an additional $521 in taxes under that proposal. Under the governor’s “fair tax,” however, that same mom would save $271 a year under the current tax and $792 measured against that worst-case scenario with a 5.95 percent tax rate.
Illinois Republican Party Chairman Timothy Schneider immediately dismissed the Pritzker proposal, issuing a statement saying, “More tax hikes will not solve Illinois’s fiscal problems.” Calling it a “$3.4 billion tax increase,” he charged it would “lead to even more out-migration of Illinois families, businesses, and jobs,” adding, “Tax-and-spend Illinois Democrats cannot be trusted with more of our tax dollars. That is why Illinois Republicans stand united against the Pritzker-Madigan tax hike and will continue to support reforms that will lower taxes, create jobs, and make our state thrive once again.”
Pritzker, however, had an answer prepared. “There are those who want to scare people by claiming that the proposal will cause residents and businesses to flee Illinois. They couldn’t be more wrong,” he said. “This proposal keeps Illinois competitive with its neighbors.” He pointed out that 33 states and the federal government all impose a progressive income tax calling for the wealthy to pay more.
“I respect the rights of opponents to disagree with this proposal,” he added, “but they should do so in good faith, with a specific counterproposal, not pie in the sky.”
Labor groups were quick to embrace the tax plan thanks to the expected impact on working families. “The Illinois Federation of Teachers applauds Gov. J.B. Pritzker’s commitment to working families and putting Illinois on a more fair, prosperous path forward,” said President Dan Montgomery. Calling it “a welcome change for our members and the communities we serve,” he added, “It’s no secret that Illinois’s dire financial situation has taken decades to develop and was made exponentially worse in recent years. Solving our problems will take both time and real structural change. The governor’s proposal asks the wealthy to pay their fair share so we can invest in schools, higher education, and vital services — and that is something the IFT supports. … Our current tax system is unfair and unsustainable, and this is a strong first step.”
“The Illinois Education Association supports a fair tax for Illinois,” said President Kathi Griffin. “Surveys show voters support a fair tax for Illinois. It is imperative that we redirect Illinois to a path of economic recovery that will help our students access the tools and resources that will allow them to reach their full potential. This will strengthen our institutions of higher education, allow our public schools to thrive, and strengthen communities throughout Illinois.” She called the flat tax “woefully regressive,” adding, “Gov. Pritzker’s plan will put us on a better path — a path to not only recover from the two-year budget impasse, but also to grow and stabilize our economy.”
Tom Balanoff, president of the Service Employees International Union’s Illinois State Council, endorsed the change in tax systems. “Illinois’s current tax code puts undue burden on the working people of our state, making it harder for them to put food on the table for their families and get ahead,” he said. “Gov. J.B. Pritzker campaigned on a promise to overhaul this unfair system, and today he is making good on that pledge.
“The janitors, health-care and home-care workers, security officers and more of SEIU support Gov. Pritzker’s fair tax plan, which will make Illinois a better, more equitable state for working families.”
Roberta Lynch, executive director of the American Federation of State, County and Municipal Employees Local 31, committed her 100,000-member union to work for passage. “Under Gov. Pritzker’s fair tax plan, millionaires would pay more while working people pay less. Public services and schools would get needed reinvestment and the state could pay its bills,” she said. “Raising needed revenue from those who can afford to pay a little more — while cutting or keeping taxes low for 97 percent of filers — is the fair tax reform that’s long overdue in Illinois. Our union will work with lawmakers to pass the legislation needed to put the fair tax plan on the 2020 ballot.”
The Illinois Constitution calls for a flat tax, so it will have to be amended to allow a graduated income tax. That requires passing both houses of the General Assembly by a supermajority, as well as a supermajority vote by the public in the next general election in 2020.