Graduated income taxes are actually more stable
Study from 2010s debunks threats that fair tax will be ‘manipulated’ to hit middle class
Analysis of income taxes across the United States debunks charges that progressive taxes are more readily “manipulated.” (Shutterstock)
By Ted Cox
There’s no truth to the conservative scare tactic warning that graduated income taxes are more readily changed to shift the tax burden, according to a study out of the University of Illinois at Chicago’s Government Finance Research Center.
Conservatives have charged that — even as Gov. Pritzker has touted his proposal for a fair tax as raising rates only on the top 3 percent of earners making more than $250,000 — the progressive income tax is likely to be changed to “go back down to lower incomes,” in the words of state Senate Minority Leader Bill Brady of Bloomington.
The study results, published in a UIC blog post, found that actually for the decade of the 2010s graduated state income taxes were more stable than flat-rate income taxes. And in the rare instances that progressive tax rates were changed, they were actually more likely to be lowered and not raised.
Bloggers David Merriman and Amanda Kass point to the ongoing Illinois debate on tax structures, as the fair tax goes into a statewide referendum in the fall requiring a 60 percent majority for passage to amend the Illinois Constitution, and they grant up front that “some have argued that permitting a graduated structure will open the door for frequent tax hikes.” They add: “Central to this argument is a belief that the complexity of graduated structures makes it easier to gain political consensus for tax-policy change since such changes need not apply to all taxpayers.”
The study debunks that, however. Key to its findings is that changes to flat income taxes involve simple hikes or reductions, while there are many more ways to tweak the various rates in progressive income taxes — opportunities that are largely rejected.
The study compares tax rates in 10 states with flat income taxes against 24 states and the District of Columbia with progressive tax rates. “In the 10 flat-rate states there were 77 opportunities for tax changes in the period we studied,” the blog states. “In 60 cases (77.9 percent) the state did not change rates. In 16 cases (20.8 percent) the state cut rates, and in one case (1.3 percent) a state increased the rate.
“Rate changes were less common in states with graduated structures,” it adds. “Because these states had multiple rates in each year, they had many more opportunities to alter rates but rarely did so. Counting all of the rates in each of the states in each of the years we studied, the states had 1,036 opportunities for rate changes. In 995 cases (96 percent) the states did not change the rate. In only 12 of these cases (1.2 percent) states raised the tax rate and in only 29 cases (2.8 percent) states cut tax rates.”
So states with progressive income taxes were actually less likely to make available changes to the tax code, and in the rare instances when they did they were more than twice as likely to cut tax rates than raise them.
The study allows that tax policy is complex from state to state, with some state taxes shifting automatically with changes in the federal tax code, and that the decade of the 2010s constitutes a relatively short (and prosperous) period to study shifts in taxes, so the results may not be “definitive.” But it nonetheless finds: “Overall, with data over a relatively short (and prosperous) period, the empirical evidence provides little systematic support for the hypothesis that states with graduated structures are significantly more likely to make rate changes when compared to states with flat rate systems.”
That hasn’t stopped conservative Republicans from trotting out the scary threats that a graduated income tax will inevitably be altered to shift the tax burden to the middle class. Brady made that charge last summer in an appearance at the City Club of Chicago, in which he stated overtly that the fair tax “must be defeated,” and conservative radio pundit Dan Proft repeated it later last year in a debate on the fair tax at the Union League Club of Chicago.
Brady deliberately muddled the distinction between low- and middle-income taxpayers when he charged that a progressive income tax would lead to an Illinois “exodus of middle-income families.” The Better Government Association ruled that “False” in a “fact-check” report, and just this week it called out a more recent statement he made charging that Pritzker had “manipulated” the fair-tax debate with the position that it only raises taxes on the top 3 percent.
“Eventually the politicians, after they’ve driven out some of the million-dollar incomes, have to go back down to lower incomes,” Brady told National Public Radio station WGLT-FM in Bloomington-Normal. He cited Oregon, charging that the state had broadened its top tax bracket from those earning more than $250,000 to half that figure, including those making $125,000.
True enough, the BGA found, but its fact-check report took pains to point out that, when Oregon did that, it also dropped the top tax rate to a level below what those $125,000-a-year wage earners had been paying.
“Brady suggested that Oregon taxpayers earning between $125,000 and $250,000 saw an increase after 2012 because of the bracket change in the state’s graduated income tax,” wrote the BGA’s Kiannah Sepeda-Miller. “While the law did lower the threshold for Oregon’s top tax bracket, all taxpayers in it paid less in taxes than they had for the previous three years because the tax rate was also lowered.
“Given that his remarks create an inaccurate impression that taxes went up in Oregon after 2012, we rate his claim Mostly False.”
Unfortunately, that hasn’t stopped conservative Republicans from repeating the same scare tactics, and voters can expect to hear more of the same between now and when the tax referendum goes at the top of the ballot in the November general election.