* From Gov. Pritzker’s budget address…
Our second option is to raise revenue with our current regressive flat income tax system and impose more flat taxes which fall disproportionately on the working poor and the middle class. This option could require imposing sales taxes on services, implementing a retirement tax, or raising the income tax overall by around 20%. Or all of the above. For a family earning $100,000, that means paying almost a thousand dollars more in income taxes, and their property taxes will continue their upward march as they always have.
* The BGA rated these claims “Mostly False”…
But experts told us that extending the [sales] tax to cover an array of services, such as landscaping, hair styling and laundry, could not only bring in more revenue but help make the sales tax less regressive and benefit those with less disposable income by providing a cushion to lower rates overall.
“As income rises, the share of your expenditures that are spent on services generally rises,” said David Merriman, an economist who heads the Fiscal Futures Project at the University of Illinois. […]
Pritzker would be correct about harming the poor and middle class if Illinois simply did away with the retirement income break in its entirety. But that’s not how it’s done by most states.
In general, states that tax retirement income nonetheless shield some of it from taxation. That’s the case in Indiana and Michigan, which, like Illinois, have flat-rate income taxes. Both neighboring states exempt Social Security income, and Michigan also allows thousands of dollars in deductions on pension and annuity benefits. […]
In his budget speech, Pritzker held out his graduated tax push as the only way to inject more fairness into a tax system currently charging everyone at the same rate. But during last year’s primary campaign, Pritzker himself floated a revenue-raising plan to make the single-rate system more progressive that would require legislative approval but no constitutional change.
Lots of woulda, coulda, shoulda in there.
* This is what the governor’s office sent to the BGA…
• Governor Pritzker is advocating to change the tax system because the system of flat taxes in place today as currently structured is regressive. That hurts working people more than it hurts the wealthy. Illinois taxes are flat, so raising taxes within the current system would mean that the burden falls disproportionately on working people. Our goal is to finally put a comprehensive graduated income tax system in place.
• By its nature, today’s existing flat taxes are regressive because all taxpayers are paying the same rate, regardless of how much they earn.
• The middle class and those striving to get there in Illinois pay more of the percentage of their income in taxes than upper class Illinoisans. In fact, according to ITEP, Illinois ranks as the 8th least equitable system in the country: https://itep.org/whopays/
• Without a fair tax, low-income families pay a higher percentage of their income toward taxes. Overall, taking into account all taxes Illinois families pay, the lowest 20% of income-earners, or those making less than $21,800 a year, pay 14.4% of their income toward taxes. The top 1%, or those earning more than $537,800, pay only 7.4% of their income toward taxes.
• This becomes clear when you look at families’ entire tax burden.
• Property taxes: In Illinois, the lowest 20% of income-earners, or those making less than $21,800 a year, pay 6% of their income toward property taxes. The top 1%, or those earning more than $537,400 a year, pay only 2.1% of their income in property taxes.
o Additionally, Illinois has some of the highest property taxes in the nation and studies have found that homeowners in low income areas are often paying the highest rates:https://www.chicagotribune.com/news/watchdog/taxdivide/
• Sales and excise taxes: In Illinois, the lowest 20% of income earners, or those making less than $21,800 a year, pay 4.8% of their income toward sales and excuse taxes. The top 1%, or those earning more than $537,400, pay only .8% of their income in sales and excise taxes.
• Between a flat income tax and property taxes, the tax burden already disproportionately falls on low and middle incomeIllinoisans.
• By its nature, a sales tax on services is also regressive because all taxpayers are paying the same rate, regardless of how much they earn. Raising taxes on services instead of a fair income tax would disproportionately impact the middle class and lower income families. Like the governor said, he does not support taxes that disproportionately impact low and middle income residents.
o States that have expanded their sales tax base, like Wisconsin that you mentioned, already have a fair tax system so their tax burden is already more equitable than Illinois.
▪ Wisconsin ranks 34th least equitable on the ITEP study cited above, compared to Illinois at 8th least equitable. (A higher number means a state is more equitable.)
• In order to tax retirement income in a progressive way, Illinois would need to amend the constitution to allow for a fair income tax. The governor is not pursuing taxing retirement income, but he is pursuing a fair income tax.
• During the campaign, the governor did not propose raising the flat tax with exemptions. He pointed to a plan already introduced by Sen. Don Harmon that attempts to create a progressive structure in a temporary way.
o However, amending the constitution to allow for a fair income tax is a much more comprehensive and permanent approach that would not be subject to a court challenge, which could not only delay implementation but means that it may never be enacted. This is why the governor is focused on this effort and is working with the General Assembly for a vote this session.
o What the governor proposed in his budget was a realistic long term solution to transform state finances and it could take effect in 18 months.
• Additionally, a fair income tax helps combat rising income inequality. For the past several decades, virtually all income growth has been made at the top income levels. A flat tax fails to capture that growth because the same rate applies to high and low income earners. While some states have taxcodes designed to tap into the wealth held by the top 1 percent, Illinois’ unfair flat tax rate continues to rely on taxes from those who have the least wealth in the state. A Fair Income Tax with lower rates for lower incomes and higher rates for higher incomes is needed to bring about tax fairness in Illinois and long-term, structural reform that produces stable and sustainable revenues and finally gets our fiscal house in order.
• A fair income tax also eases local property tax burdens and allows Illinois to invest more state dollars in public education. Increasing the state contribution to local governments and school districts eases the burden of local property taxes. According to the most recent data available from the National Center for Education Statistics, Illinois contributed just 24.9 percent of the total cost of public education in the 2014-2015 school year. Nationally, the average state contribution to elementary and secondary education is 46.6 percent.
o Neighboring states with a fair income tax system contribute a greater share of the overall cost of public education than Illinois:
• Iowa contributes 53.5 percent of the total cost to funding public education,
• Kentucky contributes 54.9 percent of the total cost to funding public education,
• Missouri contributes 32.5 percent of the total cost to funding public education, and
• Wisconsin contributes 45.9 percent of the total cost to funding public education.
• Finally, Governor Pritzker will work with the legislature to advance a fair tax amendment this session. As the discussion on the amendment moves forward, the rate structure will be negotiated with the General Assembly before a vote takes place so the public has a full and transparent understanding of the way forward.
The inevitable court challenges of high exemptions for retirees and graduated exemptions for everyone else are the administration’s best points. Tax hikes like those could be tied up in court for years and years.
Your thoughts?
- City Zen - Monday, Mar 4, 19 @ 10:36 am:
==Michigan also allows thousands of dollars in deductions on pension and annuity benefits.==
Not if you were born after 1952.
- cover - Monday, Mar 4, 19 @ 10:37 am:
= The inevitable court challenges of high exemptions for retirees and graduated exemptions for everyone else are the administration’s best points. =
When I read this story yesterday, I was thinking the same thing. Unconstitutional “options” aren’t really options at all - something that the BGA and other groups who closely watch Illinois’ finances ought to be very familiar with, after years of that exact same problem with attacking the state’s pension debt.
- Roman - Monday, Mar 4, 19 @ 10:48 am:
After doing a pretty good job of calling balls and strikes during last year’s primary season, the BGA’s fact-checkers have really jumped the shark. They’re mostly splitting hairs on subjective arguements, instead of calling out pols who make things up. (Sorry, mixing a lot of metaphors.)
They need to take a few months off.
- Anonymous - Monday, Mar 4, 19 @ 10:50 am:
The threat by JB. Vote for my progressive income tax, or else, every one will pay more in income tax.
- GetOverIt - Monday, Mar 4, 19 @ 10:51 am:
Ouch, just posted about this in the post just before this one…well done by the Sun-Times. I suspect it gains little traction…
- Anonymous - Monday, Mar 4, 19 @ 10:55 am:
2 more years and income taxes will be going up in 2021. A flat tax, or a progressive tax, in which we do not know rates for income brackets. Gives you time to get ready to move out of state.
- City Zen - Monday, Mar 4, 19 @ 10:57 am:
==Neighboring states with a fair income tax system contribute a greater share of the overall cost of public education than Illinois==
They also spend 20-30% less on the overall cost of public education per pupil than Illinois.
Also, neighboring flat tax Michigan and Indiana do an equal, if not better, job at funding education at the state level than these states.
- CPA - Monday, Mar 4, 19 @ 10:59 am:
Just tell us what the rates would be under JB’s tax plan.
Also, are they keeping some the deductions, like the dividend subtraction?
Are they going to keep the property tax credits, supplies and materials credit?
No details = No Support for me.
- JS Mill - Monday, Mar 4, 19 @ 11:02 am:
=They also spend 20-30% less on the overall cost of public education per pupil than Illinois.=
So are you saying that we need to reduce the cost of education in Illinois? How much should we reduce teacher pay?
- Perrid - Monday, Mar 4, 19 @ 11:03 am:
@Anonymous, “A flat tax, or a progressive tax, in which we do not know rates for income brackets.”
Sigh. Legislators have said they will introduce legislation with rates at the same time they introduce an amendment. So, there goes that whine, right out the window. Buh-Bye. Also, rates change. Brackets change. It’s a separate issue. Voting to allow flexibility in the tax system just stops the more well off from holding the less well off hostage.
- Anonymous - Monday, Mar 4, 19 @ 11:06 am:
Just the facts JB and what it will cost me, under a progressive income tax. No threats, just the facts and I will make up my mind.
- Grandson of Man - Monday, Mar 4, 19 @ 11:07 am:
Illinois contributes an abysmally-low amount to education. We can’t and shouldn’t keep this going.
We should also get rid of notions that Illinois should be like lower-wage red states. That ain’t happening with Pritzker and Democrats, so let’s put the talking points away.
- Anonymous - Monday, Mar 4, 19 @ 11:11 am:
Flexibility in rates, under a progressive tax system, allows politicians to raise taxes easier, when ever more tax revenue is needed.
- RNUG - Monday, Mar 4, 19 @ 11:15 am:
IF the State were to tax retirement income, they need to do it in a consistent manner.
There is a big problem with the simplistic approach of just exempt Social Security and tax everything else. Not everyone receives SS.
In terms of State retirees, the most notable exception is teachers. But there are other State retirees that don’t receive SS; one obvious block is all the non-coordinated positions. A fair chunk of those are people who started with the State prior to 1970 and, when given the choice to switch to SS, decided to stay on the old (pre-Tier 1) State pension system.
Another group that does not necessicarily receive SS is any federal government retiree who started employment prior to 1984. For example, this includes people like post office workers.
Then there are railroad workers who participate in RRB instead of Social Security and may or (more likely) may not also have some SS benefits from other earnings. RRB is a parallel government retirement system to SS set up back in the 1930’s.
Bottom line: there are lots of people who may not be receiving SS in retirement. So just exempting SS from income taxation is patently unfair to a lot of retirees. and yes, I know some states do that; I don’t know if it have ever been challenged in court and I’m not going to research it.
If you are going to implement a income tax on retirement and you want to avoid hurting the lower income retiree, then the best and cleanest approach would be to exempt a specific amount of retirement income. That way all retirement income would be treated equally.
- Anonymous - Monday, Mar 4, 19 @ 11:22 am:
And that RNUG will end up in court and take years and take lots money to decide. Fair maybe, but that would be for the courts to decide.
- Jibba - Monday, Mar 4, 19 @ 11:23 am:
So JB is correct in his income tax math and the effects of broad-based service taxes similar to those in surrounding states.
However, BGA’s experts say that if you tweaked service taxes just right, you might be able to shift the tax burden just a tiny bit toward wealthier folks. Presumably through taxes on Bentley waxing and re-tinning your crepe pans. That’ll bring in the revenue.
I rate BGA as mostly full of it.
- Pot calling kettle - Monday, Mar 4, 19 @ 11:27 am:
==Just the facts JB and what it will cost me, under a progressive income tax. No threats, just the facts and I will make up my mind.==
==Flexibility in rates, under a progressive tax system, allows politicians to raise taxes easier, when ever more tax revenue is needed. ==
So, really: “Tell me the rates, but, when you do, I won’t believe you.”
Got it. Thanks for clarifying.
- City Zen - Monday, Mar 4, 19 @ 11:29 am:
==There is a big problem with the simplistic approach of just exempt Social Security and tax everything else. Not everyone receives SS.==
Sigh.
Do you understand the concept of pre vs post tax retirement contributions? Your pension and my 401k contributions are pre-tax, meaning those contributions are deducted from our taxable income when it was earned. We forego paying the tax today in exchange for paying it later when we withdraw that money. Ergo, it is deferred.
On the other hand, I don’t deduct my SS contributions when I determine my taxable income today. In other words, I already paid taxes on those wages. Big difference.
You could argue folks should pay interest on the SS contributions, but that is typically balanced out by the re-distributive nature of SS itself.
So just exempting SS from income taxation is not patently unfair to a lot of retirees because it is treated patently different when it was earned.
- Anonymous - Monday, Mar 4, 19 @ 11:39 am:
==So just exempting SS from income taxation is not patently unfair to a lot of retirees because it is treated patently different when it was earned. ==
Sigh.
Some people get state pensions, not social security. Just because you want to get rid of state pensions doesn’t mean nobody now relies on them.
- Rich Miller - Monday, Mar 4, 19 @ 11:44 am:
Gonna be hard to top Jibba.
- Demoralized - Monday, Mar 4, 19 @ 11:44 am:
==Do you understand the concept of pre vs post tax retirement contributions? ==
lol. Being condescending to RNUG. I think he can hold his own when it comes to his topic. You’re out of your league
- Jibba - Monday, Mar 4, 19 @ 11:48 am:
CZ, given that we currently exempt retirement income, the tax treatment of SS is not really germane. The real issue is whether taxing retirement income an undue burden to lower and middle class folks. Changing the rules of the game when folks are retired or approaching retirement is patently unfair. Asking retired folks who live on modest incomes to pony up another 5% is not acceptable. At the very least, a very high exemption ($50K or more) is required to protect less wealthy retirees.
- Chris - Monday, Mar 4, 19 @ 12:00 pm:
“Illinois contributed just 24.9 percent of the total cost of public education”
However one feels about teacher pensions, funding for TRS is part of the “total cost” of public education. I realize that the funding ratios for the states used in the comparison likely *also* do not include the pension costs, but that doesn’t make it less misleading.
- NobodysAccountable - Monday, Mar 4, 19 @ 12:03 pm:
Interesting reading from the The Southern Illinoisan in regards to a graduated income tax.
https://thesouthern.com/opinion/columnists/opinion-dan-mccaleb-spin-machine-on-full-throttle-in-graduated/article_b122d292-b4b9-5681-8628-0a78fea264ad.html
- Anonymous - Monday, Mar 4, 19 @ 12:03 pm:
Understood that we need new sources of revenue. However, taking income away from those who not only are on fixed incomes with the highest medical costs of any age group, coupled with the face that they are now unemployeable due to age–is pretty low.
Understood that other state tax retirement income in a variety of ways. However, if retirees are to be dinged, then all retirees, and all retirement income –since we’re so desperate for new revenue–should be dinged.
Maybe over 65 year olds should be able to bump off younger folks to get back into the world of work, given that they would now need extra income.
- Chris - Monday, Mar 4, 19 @ 12:04 pm:
“the best and cleanest approach would be to exempt a specific amount of retirement income”
Also, as applied to all income, the simplest and quickest way to make the existing income tax considerably more progressive, without requiring a constitutional amendment.
- City Zen - Monday, Mar 4, 19 @ 12:20 pm:
==I think he can hold his own when it comes to his topic==
Disagree, because he repeats these inaccurate talking points every time this topic comes up.
But I’ll concede. If fairness is the concern, let’s convert all state employees not participating in SS today to full SS participants. That will require a few changes:
- Deduct 6.2% from the employees wages for the EE share.
- Deduct another 6.2% from the employees wages for the ER share (because your employer uses their portion in determining what gross wages they can pay you).
- Reduce the service years multiplier for pensions (because employees in states with SS/pension combos typically have to many more years to fully vest).
Are you sure you want fair?
- Anonymous - Monday, Mar 4, 19 @ 12:25 pm:
The reason state employees are not in SS is because it was cheaper for them not to be. Read up on your history.
- Oswego Willy - Monday, Mar 4, 19 @ 12:27 pm:
===Disagree, because he repeats these inaccurate talking points every time this topic comes up.===
… and yet, Rich has him as the resident pension expert.
Banging on the table isn’t making - RNUG - any less.
You’re sounding like Commander Galloway;
You go after the expert once to make them question his expertise. You keep going after him, it looks like you’re afraid of the expert.
It’s the difference between smart commenting… and troll commenting…
- the old man - Monday, Mar 4, 19 @ 12:40 pm:
I love it when the dems talk about a “FAIR” tax, to explain a graduated income tax, but they shy away from the “FAIR MAPS” proposals when it comes to reapportionment. STRANGE don’t you think. I always heard “all is fair in love and war” but apparently not if you are an Illinois democrat.
- Demoralized - Monday, Mar 4, 19 @ 12:44 pm:
==Disagree, because he repeats these inaccurate talking points every time this topic comes up.==
According to you. I think I’ll take his expertise over your perceived expertise, not to mention your arrogant, condescending attitude.
- Demoralized - Monday, Mar 4, 19 @ 12:50 pm:
==but apparently not if you are an Illinois democrat.==
Another victim heard from
- Rich Miller - Monday, Mar 4, 19 @ 12:53 pm:
===but they shy away from the “FAIR MAPS” proposals when it comes to reapportionment===
Pritzker supports the fair tax and fair maps. So did his two top Dem primary rivals and a bunch of legislators.
- City Zen - Monday, Mar 4, 19 @ 1:00 pm:
OW/Demo - What about my comment regarding the taxation of retirement contributions (pension and 401k) versus social security was incorrect? This isn’t a discussion on pension benefits or its history. It’s the treatment of those contributions by the state and federal governments and what is taxable and when.
If the concern is the taxation of any and all retirement income be equal, then there is a simple fix: Let everyone deduct social security contributions from taxable income today. Treat it like a pension or 401k contribution. I’m fine with that.
Until then, they are not the same, nor should be treated as such.
- Anonymous - Monday, Mar 4, 19 @ 2:09 pm:
So here we are again, bickering about whether 2 thousand more should be taxable or not while millionaires and billionaires pay far less on their income and that taxed income could make a bigger difference than middle class social security recipients. Small minded
- MG85 - Monday, Mar 4, 19 @ 2:18 pm:
I think it’s fair, and even academically accurate, for Pritzker to make the claim that the alternative to a progressive “fair” income tax is to utilize regressive taxation means.
The BGA is trying to be cute by saying that Pritzker’s assertions are too rigid.
Of course regressive means can be made more regressive. A sales tax imposed on things only wealth people can buy is more progressive than taxing groceries. Likewise, a graduated tax system that places all the burden of tax on lower income levels is a more regressive form of taxation.
Of course, that’s not what Pritzker is proposing, and a straight sales tax vs income tax comparison means one is more regressive than the other while each can be made more regressive or progressive.
Maybe BGA should try less to tie itself into knots to make the administration look like fibbers and focus more on explaining what is actually being proposed.
- Demoralized - Monday, Mar 4, 19 @ 2:42 pm:
CZ:
You were arguing that it isn’t unfair. That’s an opinion, not a fact. Some of us do believe that to exempt one but not the other would be unfair and that you should be looking at an amount and not the type of income.
- Pot calling kettle - Monday, Mar 4, 19 @ 3:02 pm:
==However one feels about teacher pensions, funding for TRS is part of the “total cost” of public education. I realize that the funding ratios for the states used in the comparison likely *also* do not include the pension costs, but that doesn’t make it less misleading.==
Because current pension payments include money to make up for missed payments from the past, only some of the funding for TRS would be counted as part of the current total cost of public educations. If you want to include pension costs in a comparison with other states you would need to exclude the back payments.
- CapnCrunch - Monday, Mar 4, 19 @ 4:10 pm:
“Property taxes: In Illinois,….[t]he top 1%, or those earning more than $537,400 a year, pay only 2.1% of their income in property taxes…”
Aren’t the Feds trying to fix that with SALT? They’re effectively paying more, but sending the increase to Washington.
It’s part of making the wealthy pay more.
- Last Bull Moose - Monday, Mar 4, 19 @ 4:30 pm:
I agree with the basic idea of making the tax system more progressive. The exact numbers are suspect. Poor people are more likely to rent than own. Are they imputing taxes as part of the rent? The sales tax on unprocessed food is 1%. Poor people presumably spend a large portion of their budget on food. Getting to a 4.8% average rate for sales and excise taxes seems a stretch.
- RNUG - Monday, Mar 4, 19 @ 4:38 pm:
== If the concern is the taxation of any and all retirement income be equal, then there is a simple fix: Let everyone deduct social security contributions from taxable income today. Treat it like a pension or 401k contribution. I’m fine with that. ==
Yes, I agree there are pre and post tax differences on various types of retirement savings. And what falls into which category has actually changed over time if you look back far enough. Just ask my parents generation that was promised that SS would never be federally taxed. It is partially a Federal tax issue over the different ways that SS and other retirement savings are treated at the Federal level. And you are right that the Feds could solve it.
Part of what I am trying to point out is that complexity. Your retirement savings (I really hate that term when talking about SS because it is as much a redistribution system as a straight retirement system) varies based on your employment. Teachers get one treatment, government employees another, railroad employees another, and private sector employees yet a different way. We can discuss which is better or worse or fairest.
Beside that, there are other different treatments. For example, if you are saving on your own, you can choose a straight IRA that is deductable on your taxes and pay taxes on the back end or a Roth IRA where you pay the taxes on the front end and are never taxed again on it, assuming the Feds keep their promises on that.
One of the choices that will have to be made on taxing retirement income statement the State level is do you mimic all the complexity of the federal system or do you do a simple exemption?
- City Zen - Monday, Mar 4, 19 @ 4:43 pm:
CapnCrunch - Take any and all ITEP claims with a giant grain of salt as they consider Oregon’s tax structure regressive.
https://itep.org/oregon/
- Anonymous - Monday, Mar 4, 19 @ 8:19 pm:
Where does illinoia state government taxoney go? Only 25% goes to education? What a horribly run state.
- Stock - Tuesday, Mar 5, 19 @ 6:57 pm:
Wondering why “retirees” get large exemptions simply due to the fact they are older and/or retired? Odd, especially, since a person the same age who continues to work gets no larger exemption.