Daily Debunk: What could be more fair?

Flat tax rate is regressive by definition and benefits the wealthy, while inequities are balanced out by the Fair Tax

A flat tax rate is regressive by definition and grants more disposable income to the rich than to working families struggling to make ends meet. Is that what you call fair? (Shutterstock)

By Ted Cox

This one, we have to admit, is one of our favorites.

Opponents of the Fair Tax Amendment, establishing a graduated income tax in Illinois, like to advocate for the status quo and the current state demand for a flat tax by pointing out the obvious, that everyone pays the same percentage of income under a flat tax rate.

What could be more fair? Everyone right now pays 4.95 percent of income to the state, so when you make more you pay more. Nuff said.

Or, as the Illinois Policy Institute put it, in a recent post called “7 Misleading Progressive Tax Claims Public Unions Are Telling Illinois Members,” which we’re going to dip into today for our Daily Debunk: “The Illinois Constitution currently guarantees a flat tax rate, and taxpayers with higher incomes pay more in taxes than taxpayers with lower incomes.”

That’s more in absolute quantity, of course, not more in the stress and actual logistics of paying it.

Because, first of all, a flat tax is by definition regressive. Let’s look at the state’s very minimal tax on grocery items. Two families go into the store and buy the same groceries and pay the same tax on them, let’s say for the sake of argument $5. That $5 means next to nothing for a family with household income of $100,000. But it’s a week of bread and cold cuts for a family thinking of how to pack lunches when they have no extra money to pay for anything but the bare essentials — if that.

The basic cost of living is the same for everyone. True, when the rich buy more they pay more in taxes, but a miser can live as cheaply as a poor person — up to a point. What’s undeniable is that the basic cost of living takes up a larger percentage of income for a low-wage worker than it does for someone making more than $250,000 (just to pull a number out of the air).

And regressive taxes, in which everyone pays the same, are everywhere: at the grocery store and the gas pump and the shopping mall and even these days on your cellphone or cable bill.

So think about this and grasp it, because it’s the essence of the argument for a progressive income tax: after paying the basic cost of living and all those basic taxes, a low-income family has much less disposable income, to do with as they please, than a more well-to-do family.

“Disposable” income, what a concept for all too many of our Illinois working families, especially in the midst of a terrible recession brought on by a pandemic.

We recently cited a study titled “Illinois’s Flat Tax Exacerbates Income Inequality and Racial Wealth Gaps.” It states up front: “In Illinois today, after state and local taxes, a family making less than $21,800 has 85.3 percent of their income remaining post-taxes while a family with more than $537,400 has 92.6 percent of theirs. Tax laws that perpetuate these inequities year after year make it even harder for families already struggling to get by with low, stagnating wages.”

Those figures actually seem conservative to our way of thinking. The difference of what it feels like in your everyday decisions of what to buy — what’s necessary and what’s an affordable luxury — is much more pronounced when you compare someone making $20,000 to someone making $500,000.

So that’s what the Fair Tax proposed by Gov. Pritzker and passed by the General Assembly does: it attempts to address those basic social inequities by asking the very rich, those making more than $250,000 a year, to pay a little bit more, up to a top tax bracket paying just under 8 percent, while all other Illinois taxpayers — 97 percent of the population — see their tax rates cut or remain the same.

Is that fair? Well, it’s the basic taxation system adopted by the vast majority of states, along with the federal government.

We’ll give the IPI credit, though, for at least being honest about where the demand for a flat tax came from: “The (state) constitution’s drafters in 1970 included a flat-tax guarantee in order to ease voters’ fears that the state’s first income tax — which went into effect in 1969 — could be raised easily in Springfield. The current system forces lawmakers to tax everyone at the same rate, making it harder for them to raise taxes because voters can hold them responsible.”

That’s basically true, although as ever with the anti-tax IPI it exaggerates “voters’ fears” about taxation. But the impact is the same. Over the last 50 years, Illinois politicians have been resistant to raise taxes at all, with the result that the state has struggled for funding to provide basic services — like public education — and has used every excuse and tactic not to raise taxes, including so-called pension holidays, endorsed by by both major political parties, that put public pensions in the hole they’re in now.

For a half century, the rich and wealthy have not paid their fair share in taxes, and that’s in large part how we got where we are today.

You know what’s “disposable income” for a billionaire under the current tax system? It’s $20 million contributed by Citadel Investments’ Kenneth Griffin to defeat the Fair Tax Amendment — sound accounting when one considers that he would have been required to pay an extra $26 million in taxes in 2018 if the Fair Tax had been in effect. And it’s $27 million more contributed to the cause last month — again, a sound investment when one considers the impact of the Fair Tax for years going forward.

Ken Griffin drops $47 million into the Coalition to Stop the Proposed Tax Hike Amendment the way you or I would put $5 into a Salvation Army kettle or send $10 to a politician in a matching-fund drive. Now that’s disposable income.

So the next time you see a Coalition to Stop the Proposed Tax Hike Amendment TV ad spreading mistruths and misinformation about how the Fair Tax will lead to a tax on the middle class or small businesses or retirement income (all debunked), remember that it’s been paid for with what Ken Griffin considers chump change — and you’re the chump it’s aimed at.