*** UPDATE *** I’m closing comments on this post because I did the math with a bit of help and found that the tax avoidance issue is basically a nothingburger. Click here to see the results.
The Pritzker administration unveiled the first details of its long-awaited graduated income tax, and perhaps the biggest surprise is that it contains a true millionaire tax.
Under the proposal, households making more than $1 million will see all of their income taxed at the proposed 7.95 percent rate rather than just the portion above $1 million. Higher rates kick in for those making $250,000 or more, but the higher rates are applied only to the portion above $250,000. That is, until those households hit the $1 million threshold.
Madigan twice backed efforts to amend the state constitution to create a 3 percent tax surcharge on income above $1 million. He never got enough votes to put the question on the ballot, but voters in 2014 endorsed the idea by a wide margin in an advisory referendum. The 7.95 percent top rate in Pritzker’s plan matches what Illinoisans would currently pay on income above $1 million if Madigan’s idea had been adopted.
Laurence Msall, president of the nonpartisan budget watchdog Civic Federation, commended Pritzker for releasing the details of his plan. The Civic Federation does not have a position on graduated income taxes generally or Pritzker’s plan specifically, Msall said.
“Coming forward with the specificity removes a lot of the uncertainty and speculation as to what the governor and his team intends to do,” he said. “It provides a real opportunity for the state of Illinois’ policymakers to engage in a meaningful debate on the future of tax policy in Illinois.”
Msall said one of his organization’s initial concerns is that charging the 7.95 percent rate on all income for people who earn more than $1 million could lead to “very significant tax avoidance.”
* Capitol News Illinois…
But it’s the plan for the highest bracket that led Illinois Chamber of Commerce President Todd Maisch to call the plan a “millionaire’s tax,” which he said will drive high-income earners out of the state: When an earner hits $1 million of income, every penny they bring in would be taxed at a 7.95 percent rate.
“There’s always a need for more money, especially when you think about the fact that you’re squeezing more than $3.4 billion out of those high earners, how many are going to stick around to pay that tab?” Maisch said. “That tab then has to get pushed down the scale and we see it in other states. It always starts out as a millionaire’s tax, always ends up a tax on the middle class.”