Fair tax: Good for what ails state in pandemic
Rich corporations snatching up coronavirus relief funds suddenly turn green in the face when it comes time to pay something back
Ruth’s Chris Steak House: poster child for the abuse of federal coronavirus relief aid. (Flickr/Mike Mozart)
By Ted Cox and Ameya Pawar
There’s a lot of misinformation going around in the midst of the coronavirus pandemic — much of it coming out of President Trump’s daily White House briefing. But what’s most mystifying is how some politicos can use the crisis to argue against a progressive income tax.
As Ralph Martire, executive director of the Center for Tax and Budget Accountability, explained in a debate on the proposal for a graduated income tax last November — remember those more innocent times? — the whole point behind such a tax is to “raise revenue from where the economy is growing, not declining.” He pointed out, in those boom times, that the current Illinois flat tax, in which everyone pays the same 4.95 percent of income, is “missing where all of the growth in the economy is occurring.”
In an abrupt recession, however, brought on by an almost global economic lockdown in an attempt to stem the spread of COVID-19 and save lives, the opposite side of Martire’s equation is equally valid. When many workers and business are seeing income decline, why should they be paying the same tax rate as someone whose revenue is growing exponentially?
Let’s put it this way. A worker who’s lost his or her job might be drawing on unemployment, and if lucky might even be getting that extra $600 a week supposedly in one of the coronavirus relief packages Congress has passed. But that worker is still technically obligated to cite that as income — and pay a 4.95 percent tax on it at the end of the year. Meanwhile, businesses like Abbott Laboratories or Thermo Fisher Scientific might enjoy a boon from the development of rapid-fire tests for COVID-19, but if they enjoy massive profits, and some of that is passed on to top executives, guess what, they’re still paying the same 4.95 tax rate as the unemployed worker.
That’s just not right. But as Gov. Pritzker has argued in calling a graduated income tax a “fair tax,” a flat tax is regressive even in the best of times. An economic crisis only serves to cast those disparities in relief. Ideally, especially in an economic downturn, you tax where the money is growing and try to ease the pain where income is declining. That’s the way things are supposed to work. How can anyone argue against that?
Yet John Tillman, chief executive officer of the Illinois Policy Institute, tried to do just that in an op-ed column in the Chicago Tribune. Citing the pain felt by many owners of small businesses in the economic lockdown, he said now is not the time to be changing the tax code in the middle of an economic crisis. He urged voters to reject an amendment to the state constitution in the general election this fall that would allow a progressive income tax — a position he has held all along, since well before the coronavirus turned up in the United States.
As Tribune columnist Eric Zorn pointed out in something of a rebuttal: “Those who will be subject to the proposed higher rates if the amendment passes are successful entrepreneurs taking home more than $250,000 a year in taxable income in profits.” All others, 97 percent of Illinois taxpayers, will see their tax rate hold steady or decline slightly.
We’re going to step out on a limb here and suggest that anyone who has cleared more than $250,000 at the end of this year ought to be grateful, and that it’s only right that they pay a little more in taxes than those who do not.
And let’s also point out, once again, that the top tax bracket approved by the General Assembly, for $1 million earners and above, is just under 8 percent — lower than the top tax bracket in neighboring Iowa or Minnesota.
What’s the opposing position? If you’ve had pretty good year, especially while others are suffering — both many small-business owners and their idled employees — you’re going to grudge paying just a little bit more? What kind of value system does that suggest?
Sadly, the prevailing values on display at the highest levels of the federal government. The government makes $4 trillion available to backstop banks and hedge funds, while an estimated 80 percent of the CARES Act — the top coronavirus relief package, worth another $2.2 trillion — goes to millionaires, and yet common, everyday working people have to settle for a one-time $1,200 “stimulus” payment — if they’re lucky enough to get that?
President Trump rejects a congressionally approved inspector general for CARES Acts accounts, so he can dole out cash to political battleground states, just as he dumped $28 billion in the laps of farmers hurt by his own trade war. The federal Paychcheck Protection Program runs dry because big chains like Ruth’s Chris Steak House cite each individual restaurant as a small business, thus depriving true small businesses of the opportunity to draw on those emergency funds. What exactly is going on here?
On an Earth Day note, oil prices crash, and President Trump can’t hurry aid to suffering gas behemoths fast enough — on top of a $25 billion bailout for the airline industry — and yet we still can’t fund nascent clean-energy industries that could potentially help us address climate change?
Most tellingly, just Wednesday, Senate Majority Leader Mitch McConnell of Kentucky resisted providing additional aid to states and local governments, saying he’d rather see states declare bankruptcy than bail them out in the coronavirus crisis. Now, it’s true that was in part a response to proposals like the one from Illinois Senate President Don Harmon’s request for a $41 billion aid package for the state, in part to make payments on the overdrawn pension system.
But wait a second. Given the terrible impact the coronavirus lockdown is having on state revenues, they are all going to struggle to meet their budgets, so what is McConnell actually suggesting? That it’s better for the state to declare bankruptcy and jeopardize those pension accounts for the retired workers who earned them? At a time when you can’t move fast enough to send billions of dollars to corporations?
What value system does such hypocrisy represent?
Look, we’re all in a crisis. Some of us are going to weather it better than others. And all a progressive income tax suggests is that those who have done a little better pay a little more in their taxes. That seems consistent, never more so than in a plague year.
[Update: Later in the week, under public pressure, Ruth’s Chris Steak House returned a $20 million loan under the Paycheck Protection Program.]