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Problems with MJM’s millionaire’s tax

Monday, Mar 31, 2014

* Eric Zorn

One thing — really the only thing — I don’t like about Democratic House Speaker Michael Madigan’s proposed constitutional amendment to add a 3 percent state tax on all income over $1 million is that it’s not indexed for inflation.

“We thought about it,” said Steve Brown, Madigan’s spokesman. “But we decided this is a cleaner proposal, simpler to understand, easier to get through the legislature without arguing about whose inflation index we’re going to use and so on.”

Yes. And a clever if crude way to gain popular support for the introduction of needed progressivity in our income tax system.

But constitutional amendments are designed to last a long time, and $1 million 10 years from now will not be worth as much as $1 million today.

Think of it this way: If we’d put such an added tax into the revised state constitution when it was ratified in 1970, it would have targeted only people earning more than the equivalent of $6.1 million a year in 2014 dollars, according to the inflation calculator at the U.S. Bureau of Labor Statistics website.

That same calculator says that a person earning $165,000 a year in 1970 had the same purchasing power of a person earning $1 million a year today.

Agreed. It’s so difficult to change the Constitution that hard and fast numbers should never be used.

* But I’d add two more real problems with Madigan’s proposal:

1) The language leaves to the General Assembly the task of defining the word “income.” In Madigan’s proposal, the wording could be legislated to mean gross income, without any adjustments for expenses whatsoever. That would indeed leave some farmers and small business owners in danger of being hit with the surcharge, as Bruce Rauner and others have warned.

2) If voters approve the idea in November, the tax hike is retroactive to January 1st of this year. That’s an awful big first bite.

- Posted by Rich Miller        


41 Comments
  1. - Bill White - Monday, Mar 31, 14 @ 10:01 am:

    What about a 3% tax on net income that exceeds the annualized minimum wage (2000 hours) by a factor of 50?

    $10 / hr x 2000 = $20,000

    $1,000,000 / $20,000 = 50x

    ===

    That would give high earners incentive to raise the minimum wage to track inflation.


  2. - wordslinger - Monday, Mar 31, 14 @ 10:01 am:

    Those are big problems, especially the inflation factor. Leads you to believe it was rushed out there solely for political effect.


  3. - OneMan - Monday, Mar 31, 14 @ 10:01 am:

    1 — How much flexibility would/could they end up with in terms of defining income? Could it vary by source, so that lets say rental income is included but proceeds from insurance not be included or whatever.


  4. - Ahoy! - Monday, Mar 31, 14 @ 10:04 am:

    I would also add that the Constitution should not be used as a political tool.


  5. - Reality Check - Monday, Mar 31, 14 @ 10:08 am:

    All the more reason the Harmon resolution should be passed and placed on the ballot instead. It would give the GA the ability to pass either Harmon’s revenue-neutral rate structure, the millionaire’s surcharge or both.


  6. - OneMan - Monday, Mar 31, 14 @ 10:10 am:

    Bill White — I think the problem with that is you are making a constitutional mandate dependent on a legislative mandate. Not real sure that is a good idea either.


  7. - Allen Skillicorn - Monday, Mar 31, 14 @ 10:10 am:

    Politically brilliant, fiscally foolish.


  8. - Nieva - Monday, Mar 31, 14 @ 10:11 am:

    I sure hope I don’t hit the lottery!


  9. - A guy... - Monday, Mar 31, 14 @ 10:11 am:

    This is what happens when “for populist purposes” you target one category of tax payers. The myth that high income people don’t pay taxes or their “fair share” is alive and well.


  10. - Bill White - Monday, Mar 31, 14 @ 10:13 am:

    Perhaps the surcharge is intended to go down in flames to soften the blow from the 5% becoming permanent.

    So says Captain Obvious . . .


  11. - Walter Mitty - Monday, Mar 31, 14 @ 10:14 am:

    Ahoy…. You have said it all… I look forward to the time all of the cheerleader’s to tax small businessmen and succesful providers, to cheer when the Convention ends up on the ballot to change state retiree benefits…. Because there is no funding issues for the pension obligation and the majority of the public in these times would not support that concept… snark. We can opine all we want about this ain’t Texas or Wisconsin.. People are hurting….


  12. - Bogart - Monday, Mar 31, 14 @ 10:17 am:

    You mean this proposal is similar to Blago’s Gross Receipts Tax on LLC’s and S-Corps? The same Tax Madigan killed. My - how far thinking Rod was.


  13. - VanillaMan - Monday, Mar 31, 14 @ 10:23 am:

    More political crap from the crap masters.


  14. - Bogart - Monday, Mar 31, 14 @ 10:23 am:

    Oh - and by the way - Blago’s Gross Receipts Tax proposal only applied to firms/individuals with Gross Receipts over $2 million. So, Madigan’s proposal is even more regressive.


  15. - Arizona Bob - Monday, Mar 31, 14 @ 10:25 am:

    My guess is that by the time it’s done it’ll be written in such a way that will allow “progressive” taxes at any income level.

    Good consitutional provisions make the general case so that they’re flexible enough to be implemented in a functional fashion.

    This reads more like a statute than a constitutional ammendment.

    If you want a progressive tax, fight that battle by removing the “flat rate” provision from the Illinois Consititution.

    Of course, that’s what the aim of Quinn and his ilk are looking for, but they haven’t got the guts, or the persuavive argument, to get it passed.


  16. - Bogart - Monday, Mar 31, 14 @ 10:25 am:

    And finally, Blago’s GRT didn’t require a Constitutional amendment, just a simple majority bill. If they are serious, why not a GRT for firms with over $1m in gross receipts.


  17. - 47th Ward - Monday, Mar 31, 14 @ 10:26 am:

    More tremendous insight from VMan.


  18. - VanillaMan - Monday, Mar 31, 14 @ 10:28 am:

    This is what we get when we let politicians politicize our government problems. No solutions, just more politics. It is amazing Illinois functions as well as it has with these kinds of people running our state government.

    If the guys in charge fail to fix our problems, then they shouldn’t complain when voters vote in new guys to be in charge. Quinn and Madigan have been playing politics while Illinois suffers.

    If Quinn won’t make this work, then voters will choose Rauner. Quinn and Madigan are in charge and they are showing themselves unable to handle this.


  19. - OneMan - Monday, Mar 31, 14 @ 10:31 am:

    Also on the political plus side, money spent fighting this is money that can’t be spent on Rauner.


  20. - langhorne - Monday, Mar 31, 14 @ 10:34 am:

    the state cant pay its bills. and we have cut funding for education, along with pretty much everything else. so, instead of dealing with these problems head on, w a progressive income tax, or an assortment of other changes, MJM wants another flat tax. but only on millionaires. and only for education.

    theres no such thing as a free lunch. give the schools the nice windfall. then have them take over funding of teacher pensions.

    or do a lottery swap. give them new money, and take away more of the old money.


  21. - Anon - Monday, Mar 31, 14 @ 10:37 am:

    When the personal income tax was first created in 1970, the personal exemption was $1,000. That would be equal to $6,050 in today’s dollars. That would mean a family of four would not pay any income taxes on their first $24,200 of income. I’m for using CPI for all these numbers in statute (minimum wage for example) but I’m opposed to using it for just when it benefits the wealthier and not using it when it would benefit those less fortunate. (I know the personal exemption is now indexed to inflation, but at $2,100 it is so low, its negligible.)


  22. - bigdaddygeo - Monday, Mar 31, 14 @ 10:43 am:

    MJM should raise the tax rate to a number that will pay for the backlog of bills and fund unfunded pension liabilities. Any other number or discussion is just more smoke.


  23. - Gene Debs - Monday, Mar 31, 14 @ 10:47 am:

    Mitty…We have a problem with demand in this country, and it’s causing unemployment. If successful providers were, in fact, successfully providing jobs, we would not need more revenue.

    If the Bush tax cuts and deregulation had provided the economic miracle as promised, people wouldn’t be hurting. We still have those tax cuts in place stalling the recovery.

    Belt tightening translates to layoffs and high unemployment, especially at the federal level. Putting more money into the pockets of low income workers is called for, not protecting the bloated assets of so called “providers”.

    Pension reductions will hurt the economy and would have virtually no influence on the Illinois debt level. In addition they will hopefully be ruled probably unconstitutional and recognized as counter productive.

    Everyone lower than the 70th percentile of wage earners has lost buying power since the Reagan years. They are also bearing the greater burden of taxation in Illinois. They have to choose between taxes and groceries. They can’t save for retirement. They should be upset.

    The federal deficit isn’t causing a recession; rather it’s undue belt tightening at fault.


  24. - wordslinger - Monday, Mar 31, 14 @ 10:48 am:

    –If the guys in charge fail to fix our problems, then they shouldn’t complain when voters vote in new guys to be in charge–

    Who’s complaining? Except you that is. You seem to have problems with those the voters choose.

    But you’re informed insight is always….. what it is.


  25. - Walker - Monday, Mar 31, 14 @ 10:50 am:

    Our current constitution sets in stone all kinds of numbers, tax ratios, specific guarantees for key groups, and political stances. None of them belong in there. It’s a mess.

    If it were a cleaner generic document about rights, responsibilities, structure, and government operations, then none of these amendments would be necessary. They would appropriately be legislative and executive decisions.


  26. - VanillaMan - Monday, Mar 31, 14 @ 10:52 am:

    Who is complaining?
    Wow - from the guy who thought the Tea Party was a non-issue that would be gone by now.

    Figures.


  27. - VanillaMan - Monday, Mar 31, 14 @ 10:54 am:

    @ Gene Debs

    LOL! Where have you been the past six years?


  28. - John A Logan - Monday, Mar 31, 14 @ 10:55 am:

    “Who’s complaining?”

    That will go down in history with Bill’s comment after Blagojevich got arrested.


  29. - phocion - Monday, Mar 31, 14 @ 10:55 am:

    ==Who’s complaining? Except you that is. You seem to have problems with those the voters choose.==

    WS,VM isn’t the only one complaining.


  30. - wordslinger - Monday, Mar 31, 14 @ 10:56 am:

    VMan, I’m with you — like you, I have no idea what you’re talking about. It’s like Esperanto.


  31. - Walter Mitty - Monday, Mar 31, 14 @ 10:59 am:

    Gene… Thanks… The issue is, when not if it ends on a ballot to open the consitution to change the unfunded pensions, I will be happy. Someone who is 20 years in a system that will not be funded for me…I say protect those retired and hurt folks like me that can still earn. Otherwise, they will pull the rug out when all the games are done being played…


  32. - PERPLEXED - Monday, Mar 31, 14 @ 11:11 am:

    “But we decided this is a cleaner proposal, simpler to understand, easier to get through the legislature without arguing about whose inflation index we’re going to use and so on.”

    They didn’t seem to have this problem when they committed the pension theft and implement a formula to slash the colas for future years. Seems to have common theme when it comes to who the recipients of the changes are.


  33. - Demoralized - Monday, Mar 31, 14 @ 11:17 am:

    ==The myth that high income people don’t pay taxes or their “fair share” is alive and well.==

    Keep on defending those rich guys @A guy.


  34. - 47th Ward - Monday, Mar 31, 14 @ 11:51 am:

    ===It’s like Esperanto===

    Hey, man, you don’t talk to the VanillaMan. You listen to him. The man’s enlarged my mind. He’s a poet warrior in the classic sense. I mean sometimes he’ll… uh… well, you’ll say “hello” to him, right? And he’ll just talk right past you. He won’t even notice you. And suddenly he’ll grab you, and he’ll throw you in a corner, and he’ll say, “Do you know that ‘if’ is the middle word in life? If you can keep your head when all about you are losing theirs and blaming it on you, if you can trust yourself when all men doubt you”… I mean I’m… no, I can’t… I’m a little man, I’m a little man, he’s… he’s a great man! I should have been a pair of ragged claws scuttling across floors of silent seas…


  35. - Oswego Willy - Monday, Mar 31, 14 @ 11:56 am:

    I guess that does make - VanillaMan - Col. Kurtz…

    Although Col. Kurtz never “complained” except about not getting into Jump School.


  36. - Rich Miller - Monday, Mar 31, 14 @ 12:08 pm:

    Let’s move along, people. All of you. Thanks.


  37. - OneMan - Monday, Mar 31, 14 @ 12:22 pm:

    Ironically that bastion of conservative thinking The West Wing covered the fair share thing…

    https://www.youtube.com/watch?v=8nzeJrXFttg


  38. - Anon - Monday, Mar 31, 14 @ 12:55 pm:

    == Of course, that’s (graduated income tax) what the aim of Quinn and his ilk are looking for, but they haven’t got the guts, or the persuavive argument, to get it passed. ==

    They don’t have the votes since it takes a three-fifth majority to put it on the ballot, and Franks is opposed, as well as a few other Dems who are quiet about it. All Repubicans are opposed. Consequenlty. since politics is the art of the possible, one takes what one can get.


  39. - Duck - Monday, Mar 31, 14 @ 1:11 pm:

    Madigan tax also does not include expanded brackets for married couples in addition to not being tied to inflation.


  40. - Grandson of Man - Monday, Mar 31, 14 @ 3:15 pm:

    “That same calculator says that a person earning $165,000 a year in 1970 had the same purchasing power of a person earning $1 million a year today.”

    So over time, without indexing, a similar thing will happen with the Madigan surcharge. With the CTBA progressive tax, earnings over $150,000 would get a tax increase, but everyone else would get a tax decrease.

    We Illinoisans reject the progressive tax but might accept the regressive millionaire tax, in which no one under $1 million would get a tax decrease. Is something wrong with this picture?

    Perhaps we might want to change our state motto.
    Illinois: Something is Wrong With Us.


  41. - Gene Debs - Monday, Mar 31, 14 @ 3:47 pm:

    I could have been clearer about debt. The fiscal deficit of Illinois is causing plenty of pain. The state never brings in enough revenue to pay for the services it has to provide the citizens.

    Illinois’ flat tax structure is unfair and burdensome on most of its citizens. When low income people have no cash reserves, State tax increases eat up cash that should go back into the local economy.

    On the federal level it’s a different story. US Government debt is fundamentally different from household debt. The federal government has a progressive tax. It can expand the money supply. It can borrow at low interest. There is no good reason for federal belt tightening when unemployment is this high, but that is what has been done.

    In 2000 there was a federal surplus, but Bush thought tax cuts were going to bring prosperity. Then he invaded Iraq, and the spending was on. Once they left office, the Republicans drank the deficit kool aid. “Cut spending and shrink government” suddenly became their mantra, their solution to the mess they created.

    Here we are now with plenty of pain to go around, and guess who wants to shred the social safety net and cut unemployment benefits or food stamps, so the poor won’t become dependent. Let’s be careful not too put any money into the hands of people who will spend out of necessity.

    “Compassionate” conservatives.


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