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More taxsplaining is apparently needed

Monday, Mar 11, 2019

* Tribune headline

Gov. Pritzker says his income tax plan would generate $3.4 billion in revenue. Some tax experts question whether it’s enough.

Um, the story quotes precisely one tax expert questioning whether it’s enough. And that’s Ralph Martire at the Center for Tax and Budget Accountability.

The Institute for Illinois’ Fiscal Sustainability at the Civic Federation, which also studies these things, proposed a revenue increase last month of about $3.1 billion in Fiscal Year 2021 and $3.4 billion in FY22, which is about what Pritzker is proposing. The Civic Federation wants to get to the same destination by taxing retirement income and expanding the sales tax - the first of which is political death and both of which are opposed by Pritzker.

And when you factor in Pritzker’s proposed tax hikes for next fiscal year, you add another $733 million to the $3.4 billion Pritzker’s tax hike would bring in, for a total of $4.1 billion (that figure doesn’t include one-time taxes and fees, like the sports wagering and recreational cannabis licensing fees).

* Crain’s Chicago Business editorial

Another problem: Pritzker’s plan as proposed pulls in $3.4 billion a year, roughly half what outside experts estimate is really needed to fill the state’s structural deficit, pay off IOUs and adequately fund pensions.

Which “outside experts” are these? I asked and haven’t yet heard back. The only entity I can find which has proposed such a thing is the Civic Committee of the Commercial Club of Chicago. That group isn’t so much known for being a fiscal expert as it is for being a propaganda outlet. They’re the ones who beat the drum for years for unconstitutional pension reforms and then put up “LOL Illinois” billboards all over the state.

The group wants an extra $2 billion a year from various taxes to inject into the pension funds to bring down long-term costs. It’s a good idea. Martire has a similar proposal. But Pritzker wants to get there a different way: by transferring state assets into the funds. We’ll circle back to that idea later today or tomorrow.

Is more revenue needed than Pritzker is proposing? I’d say so. But how much can you realistically get?

* Meanwhile, once again we see a not-great way to describe the proposed graduated income tax

Under Pritzker’s plan, those earning $10,000 or less would receive a minuscule reduction of 0.2 percentage points and pay a 4.75 percent rate.

Those earning between $10,001 and $100,000 would receive a more minuscule cut of 0.05 percentage points and pay a rate of 4.9 percent.

Those earning between $100,001 and $250,000 would pay the same rate as they do now — 4.95 percent.

From there, the tax rates dramatically increase.

Those earning between $250,001 and $500,000 would pay a 7.75 percent tax rate.

Those earning between $500,001 and $1 million would pay a 7.85 percent tax rate.

Still unclear on the concept of marginal vs. effective rates.

* A much better way of describing the proposal

The taxes would be applied marginally, meaning 4.75 percent rates would be applied to an earner’s first $10,000 of income, a 4.9 percent rate would apply to the next $90,000 of income, and a 4.95 percent rate would apply to an earner’s income from $100,001 to $250,000.

According to the plan, that means taxpayers in those brackets would pay a lower rate than Illinois’ current 4.95 percent rate which applies to every penny of income.

A 7.75 percent tax would take effect for income between $250,001 and $500,000, and a 7.85 percent rate would apply to an earner’s next $500,000, up to $1 million.

When an earner hits $1 million of income, every penny they bring in would be taxed at a 7.95 percent rate.

* One more

IPI said “there’s no publicly available data to back up Pritzker’s claim that his rates are capable of generating $3.4 billion in revenue” and that, according to IRS statistics, “these rates would generate far less revenue ($1 billion to $2 billion less).”

IPI estimates that “revenue from these proposed rates would bring in only $1.4 billion, according to dynamic estimates, or $2.4 billion, according to static estimates.”

I asked the Illinois Policy Institute last week how they came up with their projection and was promised an explanation and never heard back. The Pritzker administration says it devised its projection by working with the Illinois Department of Revenue and others.

Also, “dynamic” scoring can be twisted to do whatever the scorer wants. It’s more magic than math.

- Posted by Rich Miller        

45 Comments »
  1. - lakeside - Monday, Mar 11, 19 @ 9:16 am:

    ==Some tax experts question whether it’s enough.==

    Well, best do nothing, then.


  2. - Robert the Bruce - Monday, Mar 11, 19 @ 9:19 am:

    I wonder whether Pritzker/IDOR assumed any small percentage of people leaving the state as a result of the tax rates. These fears are always overblown, but an assumption of 1% leave, rather than 0% leave, might be prudent.


  3. - wordslinger - Monday, Mar 11, 19 @ 9:22 am:

    If you claim “experts” — plural — you should quote plural experts. To not do so is just shoddy and dishonest journalism.

    It’s akin to the “a lot of people think” crutch as a substitute for a reasoned argument. “A lot of people think ” the Earth is flat, or the moon landing was faked by Stanley Kubrick.

    “A lot of people think” infinite crazy things for no good reasons.


  4. - DuPage Saint - Monday, Mar 11, 19 @ 9:34 am:

    I do not understand why it is a one time tax and fee for sports licensing and cannabis. Those licenses should be renewed annually and fees paid annually. No different than many professions. Also services should be taxed.


  5. - PJ - Monday, Mar 11, 19 @ 9:36 am:

    The whining that it’s not enough - mostly from people who oppose the entire concept! - is beyond intellectually bankrupt. If they have a better way, they’re free to propose the specifics, down to exactly which social safety nets they want to see the liberal governor and liberal legislature cut to ribbons.

    ==I wonder whether Pritzker/IDOR assumed any small percentage of people leaving the state as a result of the tax rates.==

    This is almost assuredly how IPI got its lower estimate, and a good demonstration of why Rich called it magic. If you’re IPI, you’re ideologically constituted to assume that everyone who makes more than minimum wage is going to move to red states to flee the bad tax man.


  6. - striketoo - Monday, Mar 11, 19 @ 9:37 am:

    I have no problem with the tax proposal, but I wish the governor would propose at least a few reductions in expenditures. It is simply impossible that a state as strapped as Illinois can’t find any place to save some money.


  7. - very old soil - Monday, Mar 11, 19 @ 9:38 am:

    I think the governor’s office needs to develop and widely promote an online calculator showing the current and proposed tax on any income. Maybe then some reporters and Republicans will begin to understand the proposal


  8. - cannon649 - Monday, Mar 11, 19 @ 9:40 am:

    There are many tax experts - each has a agenda

    The people in the top bracket are real issue - they generally owned various homes and have the ability to change residence with the a couple of keystrokes. Going to a lot of explanation as to why the revenue is short.

    Also not the new millionaire is $250k any no bracket get more the $50 in “savings”


  9. - Annonin' - Monday, Mar 11, 19 @ 9:43 am:

    Gotta love how everyone becomes an “expert”
    Tribbie story bestows “expert” badge on 2 folks. Ralph and a guy who worked for Reagan — could be a geezer. IPI stuff is fake.


  10. - Chicagonk - Monday, Mar 11, 19 @ 9:45 am:

    I think so far Pritzker has done a good job by releasing details early on. The trap that he needs to avoid is talking about how more revenue is needed from the tax (even if it is). The goal is to sell the progressive tax to voters so that they vote for it at the ballot box and then worry about adjusting tax brackets later if more revenue is needed.


  11. - A guy - Monday, Mar 11, 19 @ 9:52 am:

    They (actually 1 He) is wondering if it’s enough? The mission is to open the door. This gets that done. Entering whenever you want and going to whatever corner of the room you want is a future mission.


  12. - Smalls - Monday, Mar 11, 19 @ 9:53 am:

    Here is the issue with asking for a constitutional amendment. The new tax will bring in $3.4 Billion. There is a $3.2 Billion deficit for FY20, a large portion of which is being filled with one-time revenues. So lets say it is $2.2 Billion that is the structural deficit. Then you add on the $4 Billion that the state is underfunding the pensions according to the actuarial calculations. And your real deficit is $6.2 Billion. So more hikes will be needed in the future to these rates likely. Especially after doubling down on not taxing retirement income and a sales tax on services.


  13. - Steve - Monday, Mar 11, 19 @ 9:54 am:

    I hope the tax experts are better at making predictions than before. Illinois taxes and spending don’t seem to be adding up. Just ask vendors who don’t get paid on time.


  14. - CPA - Monday, Mar 11, 19 @ 9:55 am:

    The 6% property tax credit proposed should be progressive. Start with 10-15 and have it go down with income.

    The tax relief is minimal.

    I would vote NO on the ballot question currently.


  15. - A Jack - Monday, Mar 11, 19 @ 9:56 am:

    @cannon649, New York state has the same problem with millionaire tax cheats and has broad powers in determining residence. I am sure Illinois will follow New York’s example. By the way, millionaires usually don’t win in New York.


  16. - City Zen - Monday, Mar 11, 19 @ 9:58 am:

    “Those earning between $250,001 and $500,000 would pay a 7.75 percent tax rate.”

    If they flipped the phrases they’d get it right:

    would pay a 7.75 percent tax rate on earnings between $250,001 and $500,000.


  17. - wordslinger - Monday, Mar 11, 19 @ 10:02 am:

    So the Trib, Crains and IPI are worried that Pritzker’s proposal doesn’t raise enough revenue? My, that’s some hilarious concern-trolling.

    What’s emerging among those opposed is that the proposed tax cut for the 97% will eventually become a tax increase in the future.

    That’s an obvious strawman, as you can’t tie the hands of future governors and General Assemblies under any system, including the current flat tax, unless you lock-down actual rates in the Constitution — which would be insane.

    Opponents are free to offer up tax and spending cut proposals in the GA now, and campaign on them in 2020.

    Rep. McSweeney has been traveling the rubber-chicken circuit all over the state calling for just that — perhaps he could unveil his plan and the rest of the GOP could get behind it as an alternative.


  18. - Honeybear - Monday, Mar 11, 19 @ 10:12 am:

    “Illinois taxes and spending don’t seem to be adding up. Just ask vendors who don’t get paid on time.”

    That’s because Rauner didn’t honor contracts and chose only the venders he wanted to get paid.
    IT Contracts
    Consultants
    Everyone else he refused to pay by withholding the vouchers or by shifting the money around within accounts to not allow payment.
    selective payment/non-payment as selective punishment.
    It had nothing to do with taxes and spending.
    He sucked the marrow from the agencies
    to pay IT contracts and Consultants
    he hid the cost of the damage


  19. - Demoralized - Monday, Mar 11, 19 @ 10:14 am:

    ==So the Trib, Crains and IPI are worried that Pritzker’s proposal doesn’t raise enough revenue?==

    I asked myself the same question. These are the same people who have been out there attacking on a daily basis any tax increase. And now their attack is on the amount of money it raises?

    Of course the IPI is the same organization who thought Governor Rauner’s years of no budget was a good thing.


  20. - Trapped in the 'burbs - Monday, Mar 11, 19 @ 10:14 am:

    Kudos for the effort. People understand that we have to raise revenue (taxes) and cut spending to climb out of this hole. We can’t expect that the first proposal will be implemented without revision. Hopefully, the Republicans will join in the process.


  21. - wordslinger - Monday, Mar 11, 19 @ 10:15 am:

    Also, to the Trib and Crains, if you claim “experts” — plural — you need to quote plural experts.

    Otherwise, it’s shoddy and dishonest journalism.


  22. - Anonymous - Monday, Mar 11, 19 @ 10:17 am:

    I agree with the comment above about a tax calculator being helpful to promote the plan. IPI had one (if you could call it that) before the plan was announced and I’m sure someone opposing will do another soon that ignores some features to inflate the rates. Pritzker’s people should have an accurate one out there.


  23. - Anyone Remember - Monday, Mar 11, 19 @ 10:22 am:

    “Dynamic scoring” is (to use that wonderfully understated British expression) the “illegitimate issue” of Supply Side Economics.


  24. - lake county democrat - Monday, Mar 11, 19 @ 10:30 am:

    While you couldn’t lock down the rates in the Constitution (or, as Word says, that’d be absurd), you could put a super-duperrmajority requirement (e.g., 75%) in exchange for your pledge to support. If I were the GOP that’s what I’d ask for - you probably won’t get, but you’re going to look better saying you tried to cooperate than fighting this modest and reasonable proposal, then wait for your “toldja” moment.


  25. - Huh? - Monday, Mar 11, 19 @ 10:31 am:

    “… minuscule reduction of 0.2 percentage points … a more minuscule cut of 0.05 percentage points …”

    This is the point I was trying to make last week - The minuscule reduction in tax rates for the middle class with incomes up to $100k. Where is the promised relief? An income tax reduction of $65 is essentially paying the same amount and will not be seen anywhere in the paycheck.

    The proposed effective rate on $100k is 4.885%. Big deal, so what. I am underwhelmed and unimpressed.

    Golly, jeepers, I can get a donut from Casey’s once week.


  26. - PublicServant - Monday, Mar 11, 19 @ 10:31 am:

    === Meanwhile, once again we see a not-great way to describe the proposed graduated income tax… ===

    That was likely the point of purposely describing it that way. But, if not, couldn’t they reprint with a clarification. I mean isn’t it a reporter’s job to, you know, report the facts in a manner that’s makes them clear to their readers?


  27. - Jibba - Monday, Mar 11, 19 @ 10:32 am:

    ==But how much can you realistically get?===

    This is the crux of the matter. People will want to see a big change in our financial picture after a graduated tax is implemented. Spending discipline will be needed in the extreme. Even adding the much needed education spending is likely to be too much, perhaps needing a trim. Quinn raised taxes but added spending, and squandered a lot of the improvements in our financial position he could have made.


  28. - NoGifts - Monday, Mar 11, 19 @ 11:01 am:

    I would describe it by saying “we solve the state’s budget problems without raising taxes for 97% of residents”


  29. - Smalls - Monday, Mar 11, 19 @ 11:11 am:

    =I would describe it by saying “we solve the state’s budget problems without raising taxes for 97% of residents”=

    Only issue is it doesn’t come close to solving the state’s budget problems. Still several billion dollars short in revenue.


  30. - Perrid - Monday, Mar 11, 19 @ 11:16 am:

    @Smalls, “several billion” short? In one year? How do you figure?


  31. - driveby - Monday, Mar 11, 19 @ 12:03 pm:

    No tax expert is needed to figure this out. Rich, your own estimate of what was needed was 10. something billion. Far too low because it would cost billions more than what you had to fund the pensions. Ask RNUG what the treadwater number is right now for pensions. Just that would suck up most of the 3.4 billion. And take a look at Tax Foundation’s new piece on Pritzker proposal. https://files.taxfoundation.org/20190311122534/Twelve-Things-to-Know-About-the-Fair-Tax-for-Illinois-FF-641.pdf


  32. - Anonymous - Monday, Mar 11, 19 @ 12:08 pm:

    Huh? - did you not read the rest of the post? Or do you not understand marginal rates?


  33. - Anonymous - Monday, Mar 11, 19 @ 12:09 pm:

    Any constitutional Amendment, presented to the voters, must have a statement regarding changing rates. If it says three fifths of legislature must vote for an increase in rates, or a time period, stating the time rates must remain stable. A combination of both would probably be best. With out guarantees you are only giving politicians a blank check, to increase spending and taxes. If politicians including JB, do not agree to safeguards, for rates, then that gives the voters an idea what the politicians want to use a progressive income tax for, and should serve as a warning to oppose it. Also might want to include that a certain amount of the revenue goes to pay off pension debt. The citizens of Illinois are tired of being lied to. Put the politicians under pressure, include safeguards that make them responsible for trying to increase revenue by changing rates.


  34. - Rich Miller - Monday, Mar 11, 19 @ 12:14 pm:

    ===Rich, your own estimate of what was needed was 10. something billion===

    Nope.

    That was my guesstimate of how much all of Pritzker’s campaign promises would cost.


  35. - SSL - Monday, Mar 11, 19 @ 12:22 pm:

    If the Tribune needs experts they should just come to this blog.


  36. - Pelonski - Monday, Mar 11, 19 @ 12:23 pm:

    The fact that you can give 97% of the people a tax cut and still raise over $3 billion shows just how much more income the top has than the rest of the citizens. That’s not healthy in a democracy.


  37. - Platon - Monday, Mar 11, 19 @ 12:28 pm:

    Soaking the rich hasn’t worked anywhere really. Illinois will not be the exception.


  38. - Huh? - Monday, Mar 11, 19 @ 1:13 pm:

    “did you not read the rest of the post? Or do you not understand marginal rates?”

    I even pushed the Google key. Where do you think the 4.885% came from?


  39. - RNUG - Monday, Mar 11, 19 @ 1:14 pm:

    == IPI had one … Pritzker’s people should have an accurate one out there. ==

    Actually, the IPI one was pretty much accurate on calculating the income taxes in the 3 states. The only inaccurate part was not calculating state specific / variable deductions like the property tax credit. The other slant with the IPI calculator was cherry picking the two comparison states. But it served its’ purpose as a quick and dirty calculator.

    JB should have one that figures the graduated plan with property tax relief (such as it is) against the proposed 5.95% flat rate.


  40. - Sue - Monday, Mar 11, 19 @ 1:42 pm:

    Other then being a campaign promise- if the State is in such dire straights ( we know it is) and if you are asking the 3 percent to carry all the freight- why give a tax cut to anyone other then the bottom 10 percent- there is probably another couple of billion leaving the remaining 87 percent where they are currently at?


  41. - Demoralized - Monday, Mar 11, 19 @ 2:00 pm:

    ==Other then being a campaign promise==

    You answered your own question. He said what he was going to do and he’s doing it.


  42. - Rich Miller - Monday, Mar 11, 19 @ 2:01 pm:

    ===there is probably another couple of billion leaving the remaining 87 percent where they are currently at===

    Um, no.


  43. - theCardinal - Monday, Mar 11, 19 @ 4:00 pm:

    “What we have here is a failure to communicate”. There are a lot of families that make over $250k married filing jointly living in modest suburbs. They are also and I’m guessing somewhat voiciferoius with there local Reps and Senators. These are not just folks that live in GOP districts. But, they are intelligent enough to ask whats in this for me? Just paying debt off for decades of the States lack of self control isn’t much of motivator. IMHO


  44. - Platon - Monday, Mar 11, 19 @ 4:35 pm:

    theCardinal, this will be devastating to a lot of suburban households. There will be a lot of negative repercussions to suburban real estate markets and taxes.


  45. - Sue - Monday, Mar 11, 19 @ 5:00 pm:

    The Chicagobsuburbs is one of the weakest in the US in terms of price and how long it takes to sell - it will soon be even worse


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