Hinz on taxation, revenues
Wednesday, Jan 27, 2016 - Posted by Rich Miller
* Greg Hinz writes about a new report from the Illinois Economic Policy Institute on state taxation…
The report’s top line is that if Illinois just adopted tax rates and schedules equivalent to those in neighboring states, its budget deficit would vanish. For instance, it says, adopting key components in the Wisconsin tax code would net Illinois an extra $8.3 billion a year, and following Indiana and Iowa’s lead would get Rauner et al. an extra $4.6 billion and $7.3 billion a year, respectively.
But I found other data more interesting.
For instance, the average Illinois household in 2013 (before the income tax rate dropped back) paid 9.14 percent of its income in state taxes, less than the 9.4 percent figure in Indiana or the 9.39 percent figure in Wisconsin. That’s good. But when you look at local taxes, which we also have to pay, it’s another story, with Illinois’ 7.21 percent well above that of 6.3 percent in Wisconsin and 4.7 percent in Indiana.
The full study is here.
* And there’s this…
In Illinois, the lowest-earning 20 percent paid 13.2 percent of their income in total state and local taxes, but the top 1 percent paid just 4.6 percent. That’s a 9.6 percentage-point difference.
Put a different way, as a share of what’s coming in, poor people paid three times as much as the super-rich, because of Illinois’ high sales tax rate, nongraduated income tax and other factors.
Check out the chart here.
* Meanwhile…
Moody’s Investors Service says the state’s backlog of unpaid bills and other obligations now is rising roughly $450 million a month, hitting $6.6 billion as of Dec. 31.
Projections from Rauner’s budget are that the total will hit $9 billion by the end of the fiscal year on June 30 and keep rising from there, assuming no budget deal is reached, Moody’s says—almost what it was after Quinn took over and pushed through a 66 percent income tax hike that gradually reduced the list of IOUs.
It gets worse. “If the state fails to address its structural imbalance for subsequent years, the payment backlog will swell to $25 billion, or 64 percent of expenditures, by the end of fiscal 2019.” […]
Such red ink “poses little immediate threat to timely payment” of interest and principal on $27 billion in outstanding state general obligation bonds, Moody’s says. But it is “a clear indicator of weak liquidity and governance.” […]
“Growth in the payment backlog is an alternative to politically difficult budget-balancing measures as well as to cash-flow borrowings that can temporarily alleviate liquidity pressures,” Moody’s concludes. And if the IOU total rises faster than now is expected, it “would indicate worsening liquidity that at some point will affect the ability to make monthly debt service fund deposits.”
Oy.
- Anonymous - Wednesday, Jan 27, 16 @ 10:48 am:
So if we cannot raise revenue, who can we cut out of the budget to come up with $6.6 billion? That’s how our governor thinks.
- Fusion - Wednesday, Jan 27, 16 @ 10:50 am:
==adopting key components in the Wisconsin tax code would net Illinois an extra $8.3 billion a year==
Let that sit in your brain for a while.
- Anon221 - Wednesday, Jan 27, 16 @ 10:50 am:
And, if the TA is successful, even more taxes will be potentially be paid at the local level for fund “local control”.
- Lt. Guv. - Wednesday, Jan 27, 16 @ 10:54 am:
Short of comprehensive tax reform (which in this environment is impossible) can we say, “Millionaire’s Tax?”
- cdog - Wednesday, Jan 27, 16 @ 10:55 am:
This is so true it hurts.
It is unbelievable that someone (we know who) will take this message from Moody’s and manipulate it.
I would gladly pay a higher tax rate on my annual income over $1,000,000, in return for the deletion of the school district from my property tax bill. /s
- Dee Lay - Wednesday, Jan 27, 16 @ 10:56 am:
“Put a different way, as a share of what’s coming in, poor people paid three times as much as the super-rich, because of Illinois’ high sales tax rate, nongraduated income tax and other factors.”
Now raise your hands if you think this will change in the next three years?
Anyone? Anyone? Bueller?
- Beaner - Wednesday, Jan 27, 16 @ 10:58 am:
The Income Tax would be better with higher standard deductions and exemptions. The $500 million 1.4% Turnaround Agenda could be achieved by a ten cent per alcoholic beverage tax. Or the proposed Soft drink tax would do the trick. No, demand the impossible, then claim Madigan won’t let you govern, and achieve your ultimate goal, being named “Muni-Bond Man of the Year.”
- Precinct Captain - Wednesday, Jan 27, 16 @ 10:59 am:
Why isn’t Governor Rauner emulating the tax policy of his “hero” Scott Walker?
- SAP - Wednesday, Jan 27, 16 @ 11:02 am:
The big takeaway for me is that the citizens who are most hurt by the lack of a budget are, by far, paying the greatest percentage of their income in taxes.
- AC - Wednesday, Jan 27, 16 @ 11:02 am:
No YouTube summary comparing Illinois and Wisconsin taxes would be complete without cartoon figures in Cheesehead’s…sigh
https://youtu.be/9vzdgCftMQM
- Anonymous - Wednesday, Jan 27, 16 @ 11:03 am:
Didn’t Walker bust enough unions to come up with enough “savings” without increasing taxes? He should’ve waited till our governor got into office to show him that he could’ve cut taxes to the bare bone and bust unions to provide all that was needed. /s
- Sir Reel - Wednesday, Jan 27, 16 @ 11:07 am:
Grim news all around.
IMO local taxes are high because the State won’t pay its share for schools but also because of the number of local jurisdictions.
The Governor’s consolidation task force wasted its opportunity by focusing on prevailing wage and collective bargaining.
I grew up in a state with township, municipal and county government. No water reclamation, park, mosquito abatement, etc., etc., etc. districts, each with their elected boards, executive directors, legal departments, etc., etc., etc.
Consolidation makes sense but is politically difficult (remember those elected boards). The Governor’s task force wasted another opportunity to do something.
- AC - Wednesday, Jan 27, 16 @ 11:07 am:
==Why isn’t Governor Rauner emulating the tax policy of his “hero” Scott Walker?==
Because Miley Cyrus is more interested in astrophysics than Rauner is in tax policy. I’m not even sure how Rauner eats his Wheaties in the morning without changes made to collective bargaining.
- Secret Square - Wednesday, Jan 27, 16 @ 11:15 am:
To borrow a phrase some of you have probably heard… does this mean that, without a flat rate income tax, Illinois would be (no better than) Iowa?
- 47th Ward - Wednesday, Jan 27, 16 @ 11:15 am:
===In Illinois, the lowest-earning 20 percent paid 13.2 percent of their income in total state and local taxes, but the top 1 percent paid just 4.6 percent. That’s a 9.6 percentage-point difference.===
Let that sink in for a while. Class warfare is real and the poor are losing badly.
- JS Mill - Wednesday, Jan 27, 16 @ 11:18 am:
=Why isn’t Governor Rauner emulating the tax policy of his “hero” Scott Walker?=
Better to look to Iowa. Seriously, Iowa. Say that and let it sink in because it is hard to believe. They pay taxes, probably don’t enjoy it, and have services, and a state budget surplus.
Iowa’s schools are not hurting for funding and generally have very nice facilities (they have a statewide 1% facility tax for schools) and the Universities are making out like bandits on Illinois students because our universities are a fiscal mess (lack of state support). BTW- Iowa’s universities have all of the admin and well paid staff that Illinois universities have.
Why can’t that be us?
- Grandson of Man - Wednesday, Jan 27, 16 @ 11:22 am:
This verifies what some have been saying for a long time. We desperately need revenue and to have a state income tax ballpark with many of our neighbors.
We really need also to raise the income tax on wealthy people. Instead we get Rauner and his supporters and funders trying to fix long-term problems virtually overnight by attempting to break unions and forcing harsh cuts on state workers.
- Robert the 1st - Wednesday, Jan 27, 16 @ 11:24 am:
=We desperately need revenue and to have a state income tax ballpark with many of our neighbors.=
Can our state employee compensation and benefits also match our neighboring states?
- Dr X - Wednesday, Jan 27, 16 @ 11:31 am:
While IA is a fairly good model, Gov Branstad is privatizing Medicaid on the basis of magic bean numbers. But Iowa State has the largest enrollment in their history. People like a good product.
- anon. - Wednesday, Jan 27, 16 @ 11:33 am:
So
IL 9.14+7.21=16.35
IN 9.4+4.7=14.1
WI 9.39+6.3=15.69
Which state already has the highest total tax burden - Illinois.
Won’t increasing IL state taxes increase the total state & local tax burden?
- crazybleedingheart - Wednesday, Jan 27, 16 @ 11:35 am:
Fair and transparent revenue.
People would support a tax “increase” if it could truly be explained that under the new system, they will pay less and the rich will pay their fair share.
Yes, you need a constitutional amendment for a progressive income tax.
But until then, you could also tax a wider range of income types by doing things like removing the capital gains deduction.
- Chicagonk - Wednesday, Jan 27, 16 @ 11:37 am:
I’m fine with raising the tax rate as long as retirement income is included.
- Cassandra - Wednesday, Jan 27, 16 @ 11:37 am:
It’s not just Rauner and his pals, Grandson. Madigan’s Millionaire’s Tax notwithstanding, the Democrats have made only tepid efforts to bring about a more progressive state income tax, despite having been in charge for over a decade. No, I’m not a Raunerbot. But let’s not let Illinois Dems off the hook here. Maybe they are waiting for Hillary to give them some cover. She has stated that the US middle class should not pay more taxes than they are already paying. No such statements from our local Democratic luminaries.
- anon. - Wednesday, Jan 27, 16 @ 11:40 am:
crazybleedingheart - Wednesday, Jan 27, 16 @ 11:35 am
There is no capital gains deduction or special rate in IL income tax.
- Bigtwich - Wednesday, Jan 27, 16 @ 11:41 am:
A friend moved from Southern Illinois to Southern Indiana a few years ago. He said when he came out of his house after the first snow storm and saw the city just did not do much in the way of plowing he began to understand why the city taxes were lower there.
- JS Mill - Wednesday, Jan 27, 16 @ 11:41 am:
@anon- IF Illinois adopted the tax structure of one of our neighbors it is likely that it would come with property tax relief as an essential component. That would be very doable if the state picked up its’ required school funding responsibility which they could with $8 billion in additional revenue (after paying backlog of bills).
- JS Mill - Wednesday, Jan 27, 16 @ 11:42 am:
=Can our state employee compensation and benefits also match our neighboring states?=
Sure, especially if our staffing % matched neighboring states.
- Secret Square - Wednesday, Jan 27, 16 @ 11:43 am:
“Can our state employee compensation and benefits also match our neighboring states?”
Well, AFSCME keeps saying that Rauner insists upon making the IL State employee health plan an Obamacare “bronze” level plan that would be the worst in the country in terms of coverage. So if that’s accurate, matching what neighboring states offer would actually be an improvement over what he’s currently “offering”.
- Anonymous - Wednesday, Jan 27, 16 @ 12:13 pm:
@bigtwitch - here in Northwest Indiana it’s obvious where the state line is whenever it snows. Illinois does a ridiculously better job at clearing the interstates than does INDOT.
- John - Wednesday, Jan 27, 16 @ 12:36 pm:
@: “Put a different way, as a share of what’s coming in, poor people paid three times as much as the super-rich, because of Illinois’ high sales tax rate, nongraduated income tax and other factors.”
____________
I’m not saying this is fair, but it should be added that Illinois isn’t in a tax bubble. The super-rich pay a 39.6% rate at the federal level, where those on the lower end pay little to nothing, and many get quite a bit back more than they put in.
We report our federal tax on our state returns, which impacts our state taxation in ways I won’t explain here. What my point is, is that the State tax rates may be tilted against the poor (and I’d like to see that changed), there isn’t a simple answer when you factor in how the federal tax rates flip this equation. I am against the poor overpaying in taxes, but I also do not believe anyone no matter how weathly should pay half of their income to governments.
Not to mention, the unintended consequences of taking too much from those who are the biggest employers or potential employers. The first to go will be the lowest earners, because their work is the easiest to find alternatives for.
As the president would say, “to be clear,” though a conservative, I support progressive taxation. But I also oppose taking too much from any human being, and support everyone having at least some skin in the game since that helps restrain government power (imagine one payer and to beneficiaries, the beneficiaries will almost always vote themselves more, but if it costs them something they will have to look beyond the benefits and assess them against the cost).
This should be fun. I think I’ve explained my position clearly and without insulting any class, but critiques usually accuse me of otherwise.
Lunch break is almost over. Have a nice afternoon.
- Federalist - Wednesday, Jan 27, 16 @ 12:39 pm:
Does anyone know, or even believe they have a good idea, where this is all going?
I sure don’t.
- 47th Ward - Wednesday, Jan 27, 16 @ 12:41 pm:
===The super-rich pay a 39.6% rate at the federal level,===
After deductions, many of which are available for the wealthy. Also, that rate is on ordinary income, not income from capital gains, which is considerably less.
In fact, I believe Governor Rauner reported paying an overall rate of about 20% on his federal income tax return for the most recent year he made it available.
That’s not to contradict what you’re saying John, it simply adds some important context.
- Hit or Miss - Wednesday, Jan 27, 16 @ 1:05 pm:
The fact that Illinois residents pay low taxes to the State and high taxes to local government is to be expected. The State of Illinois has for some years had the lowest per capita number of employees. At the same time it has had the largest number of units of local government of all of the 50 states. This movement of functions to more numerous numbers of government units decreases or eliminates some of the economies of scale which may be available.
As pointed out above, when you add the state taxes and the local taxes together the result is a higher total tax bill than other states in the area. However there are the non-economic advantages to be considered. These advantages include improved local control of government, the ability to meet the specific needs of the local community rather than a ‘one size fits all’ approach, and the ability to hire more local people to serve the local community.
- John - Wednesday, Jan 27, 16 @ 1:12 pm:
@47th Ward - That’s not to contradict what you’re saying John, it simply adds some important context.
________
I don’t take it as a contradiction, and yes that is important. The tax code is so complex that we could write novels on who pays what and how it happens.
Deductions get tricky. I don’t know what rate Rauner paid, but I’ll believe the 20% figure you state. Adding together, even their, his overall rate is higher than the lower rate here.
Deductions help the poor too, many of whom get back more federally than they pay in total tax at all levels, in which case the rich pay more.
I want the rich to pay more, for the record. A tax hurts me more than my employees since, while I make and pay more, I still have more disposable income after. But, to be fair, high taxation contributed to my father struggling to make payroll. While some say “he must not have been too profitable if taxes made payroll a struggle,” I don’t think that’s a good rebuttal. Most of us, and this is true for new businesses, start of smaller. He became successful, but taxes were an obstacle.
I’ve used my break too. LOL. So if I don’t reply, no offense.
Nice dialoguing with you.
- Joe M - Wednesday, Jan 27, 16 @ 1:12 pm:
===In Illinois, the lowest-earning 20 percent paid 13.2 percent of their income in total state and local taxes, but the top 1 percent paid just 4.6 percent.===
There was a “flip it to fix it” report a few years ago by the Center for Tax and Budget Accountability and United for a Fair Economy that said that if Illinois reversed those figures for those two groups - and left the other 60% of taxpayers alone, that would raise $32.5 billion in new state and local revenue for Illinois
- John - Wednesday, Jan 27, 16 @ 1:13 pm:
@My last post: “A tax hurts me more than my employees since”
_________
That should have been “hurts me less”
Insofar as missteps go when rewording a sentence, that was HUGE.
SOrry about that. I meant it hurts me less.
- anon - Wednesday, Jan 27, 16 @ 1:15 pm:
Our friends on the right tell us progressive taxation is bad. Yet they prefer the highly regressive status quo. A simple question: Why is it preferable to soak the poor, but not the rich, who have so much more ability to pay?
- anon - Wednesday, Jan 27, 16 @ 1:18 pm:
=== The big takeaway for me is that the citizens who are most hurt by the lack of a budget are, by far, paying the greatest percentage of their income in taxes. ===
I think we can fairly describe this as “class warfare,” that popular GOP epithet anytime someone proposes making our extremely regressive tax system a little bit less so.
- anon - Wednesday, Jan 27, 16 @ 1:31 pm:
I am in favor of a system where I pay less tax and someone else pays more.
- anon - Wednesday, Jan 27, 16 @ 1:33 pm:
=== There was a “flip it to fix it” report a few years ago by the Center for Tax and Budget Accountability and United for a Fair Economy that said that if Illinois reversed those figures for those two groups - and left the other 60% of taxpayers alone, that would raise $32.5 billion in new state and local revenue for Illinois. ===
Imagine the hue and cry about “class warfare” if the proportions were flipped so those with the greatest ability to pay had three times the burden of those with the least. Needless to say, the Gov and Griff would never go for this one. Neither would many Dems.
- Maximus - Wednesday, Jan 27, 16 @ 1:37 pm:
This article has good information but seems to skim over the fact Illinois has the highest property tax rates. If we adopt the income tax rates from Indiana/Iowa/etc then we should also adopt their property tax rates. My property tax bill will almost be cut in half, that would be nice.
- Fedralist - Wednesday, Jan 27, 16 @ 1:59 pm:
Obama paid an effective rate of 19.55% on his 2014 tax returns. (They are availble online)
So Rauner is not alone if the figure of 20% paid by Rauner is accurate.
- Chicago 20 - Wednesday, Jan 27, 16 @ 2:02 pm:
They need to change the Illinois constitution to allow for a graduated state income tax.
What are they waiting for?
- crazybleedingheart - Wednesday, Jan 27, 16 @ 2:05 pm:
In the 1930s, rich Chicagoans went on a tax strike until they got the change they wanted.
I don’t care to fund road salt and the lottery while we’re starving seniors and destroying futures.
Maybe it’s time to be creative about how to get fair tax on the table.
- Anonymous - Wednesday, Jan 27, 16 @ 2:50 pm:
Fund the lottery?
What are you talking about? It is a money maker!
- Louis G. Atsaves - Wednesday, Jan 27, 16 @ 2:55 pm:
So all we have to do is tweak tax revenues to be more like Indiana and PRESTO! All Illinois problems are solved!
Nine months ago any commentator here would have been lynched for proposing we be like Indiana!
Now Indiana is the new norm? Wow!
- Ghost - Wednesday, Jan 27, 16 @ 3:17 pm:
lets ditch the fallacy of comparing us to wis and IA. they are the 20 and 15 ranked states based on size. We are number 5. they are small potatoes and are not our comporables.NY, FL, Pennsylvania, CA are our comparables if someone wants an accurate comparison … comparing us to out neighbors is apples to small berries.
- Last Bull Moose - Wednesday, Jan 27, 16 @ 3:21 pm:
The most dangerous tax structure is one where a majority of people believe they can get benefits paid for by others. We already see a variant of that in the pension debate. Take money from the minority (the pensioners) and spend it on noble projects wanted by the majority.
About 40 percent of state expenditures are funded by Federal money. So our source of funds is more progressive than it seems when only looking at State GRF.
Federal effective rates are also misleading. Tax Credits generally flow to people who take lower pre-tax returns doing something the politicians want done, but are afraid to purchase directly.
In a more transparent system, tax subsidies would be banned. Vote openly to spend the money and be accountable.
- Demoralized - Wednesday, Jan 27, 16 @ 4:45 pm:
Louis:
This is just turning the Governor’s own words around on him. He constantly talks about how we should be more like Indiana or a host of other states. If we’re going to be like them then we should be like them. If you don’t like it then tell the Governor to stop the “I wanna be like [insert state]” schtick.
- crazybleedingheart - Wednesday, Jan 27, 16 @ 5:10 pm:
==Fund the lottery? What are you talking about? It is a money maker!==
You say moneymaker, I say another hidden regressive tax.
Only someone without the ability to project future finances considers the lottery a moneymaker and social services a cost.
Lottery funds and road salt required an emergency bill.
Other people’s emergencies didn’t pass muster.
- Federalist - Wednesday, Jan 27, 16 @ 6:20 pm:
The lottery is not a tax. But you can believe anything you want.
- Federalist - Wednesday, Jan 27, 16 @ 6:21 pm:
@ Last Bull Moose,
Very well stated!
- Runaground Agenda - Wednesday, Jan 27, 16 @ 7:50 pm:
Even if we were to adopt a TOTAL tax burden that mirrored our neighbors, we would still have our 111B debt to deal with.
- Grandson of Man - Wednesday, Jan 27, 16 @ 7:58 pm:
I didn’t see or hear the SOTS, but I saw in the twitters that Madigan still supports raising taxes on the wealthy. Yes it’s nearly impossible to do, but good for him! Rauner is scapegoating public employee unions and state worker salaries, but for decades he and other super-wealthy people paid low state income taxes, no doubt contributing to our huge mess today.
- Anonymous - Wednesday, Jan 27, 16 @ 11:08 pm:
Madigan is playing games. He said he supported raising the minimum wage as well, then blocked a minimum wage increase to use it as a campaign issue.
Madigan may say he supports a tax increase in the wealthy, but it is all empty talk for now.
- Peoria Guy - Thursday, Jan 28, 16 @ 8:31 am:
I would be more than happy to pay more taxes if I had any confidence that it would be used to pay down the debt. I think we all know it would not be