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Question of the day

Tuesday, Mar 12, 2019

* Tax Foundation

Within a graduated rate structure, inflation can impose a hidden tax, increasing the taxpayer’s liability as a greater share of their income is taxed even if that income has not increased in real terms, since bracket kick-in thresholds are fixed. To avoid this “bracket creep,” most states with graduated-rate structures index bracket widths and other features of the income tax to inflation. Pritzker’s proposal gives no indication of this, meaning that over time, taxpayers will pay an increasing amount of taxes as a percentage of income—even if their income has not increased in real terms.

* The Question: Should the governor’s proposed graduated income tax brackets be indexed to inflation? Take the poll and then explain your answer in comments, please…

survey solutions

- Posted by Rich Miller        

  1. - IllinoisFirst - Tuesday, Mar 12, 19 @ 12:57 pm:

    Absolutely yes. WHO in govt has not learned their lesson about inflation yet? Terminate them, immediately. Or at least transfer them to a dark hole far away from numbers and the economy. Always, always, always index for inflation.

  2. - Robert the Bruce - Tuesday, Mar 12, 19 @ 12:59 pm:

    Voted no. While I do understand inflation, I don’t believe the Pritzker tax hike is enough for our structural deficit, so every bit will help in future years.

  3. - Perrid - Tuesday, Mar 12, 19 @ 1:01 pm:

    Yes, at the lesser of 3% or half CPI. (snark)

    Really though, yes it should be indexed. And it would be much easier to put it in automatically than needing a bill every year.

  4. - A Jack - Tuesday, Mar 12, 19 @ 1:02 pm:

    Yes, because I am unbelievably wealthy in 1901 dollars, but not so much in today’s dollars.

  5. - Anonymous - Tuesday, Mar 12, 19 @ 1:04 pm:

    so should the gas tax

  6. - NoGifts - Tuesday, Mar 12, 19 @ 1:18 pm:

    It will be hard enough to get this enacted in the first place. Revisiting and adjusting the details down the road will be just as bad, and probably won’t get done. Leaving us stuck with a structure we don’t like and without the political will to change it.

  7. - PublicServant - Tuesday, Mar 12, 19 @ 1:24 pm:

    Sounds reasonable…Hey, let’s index the Minimum Wage to inflation too.

  8. - A Jack - Tuesday, Mar 12, 19 @ 1:32 pm:

    A big problem with the federal alternative minimum tax is that it is not indexed to inflation, so more middle class people get caught in it every year. It was only supposed to apply to wealthy people in the beginning.

  9. - I Miss Bentohs - Tuesday, Mar 12, 19 @ 1:34 pm:

    No. As inflation increases, costs increase. That is, even government will be spending more and will need more.

  10. - City Zen - Tuesday, Mar 12, 19 @ 1:35 pm:

    Absolutely, unequivocally yes.

    It’s the Minnesota Way.

  11. - Boone's is Back - Tuesday, Mar 12, 19 @ 1:38 pm:

    “Bracket creep”- Lol. Are they talking about Pritzker’s plan or March madness?

  12. - Honeybear - Tuesday, Mar 12, 19 @ 1:44 pm:

    No, to me this isn’t about “giving a break” or “relief”.
    This is about getting out of the hole fairly.
    That’s why I’m not sympathetic to huh.
    Working for the state I am daily reminded how devastated by Rauner we have been.
    We ARE hollowed out at a state government.
    This is about fairly distributing the lift for revenue.
    And yeah, it’s going to hurt me when all the taxes start to pile on. I’ve got high property taxes too. But working for the state I SEE how well our tax money is being spent. I see how we work hard to squeeze every bit of value out. I’m being honest. Your public servants work hard for you. But we aspire to skeleton crew status. Some of these functions will have to be figured out again as people retired and have not been replaced. Decades of institutional knowledge gone. Soooooo, (sorry I got off there)
    We have to try and fairly get every cent we can.

  13. - Anonymous - Tuesday, Mar 12, 19 @ 1:46 pm:

    “Pritzker’s proposal gives no indication of this, meaning that over time, taxpayers will pay an increasing amount”

    Will pay? There’s no indication, so assume the worst?

    This thing isn’t anywhere close to passage. It’s a bit early for this sort of certainty, unless the goal is to torpedo the thing.

    Oh, now I get it.

  14. - City Zen - Tuesday, Mar 12, 19 @ 1:47 pm:

    ==There’s no indication, so assume the worst?==

    The Illinois Way.

  15. - 47th Ward - Tuesday, Mar 12, 19 @ 2:01 pm:

    No. Incomes are generally linked to inflation, so at current rates the state will see more or less predictable revenue growth. No need for the rates to rise unless Illinois requires significantly more revenue than the natural growth will provide.

    And then the General Assembly and the Governor will have to make their case for more. That’s as it should be.

  16. - Excessively Rabid - Tuesday, Mar 12, 19 @ 2:22 pm:

    Not sure everyone is understanding the question. I voted yes to indexing the brackets. If asked about indexing the rates, I would say no.

  17. - Dance Band on the Titanic - Tuesday, Mar 12, 19 @ 2:24 pm:

    No. Income tax revenues will natural increase as wages increase, thus capturing inflationary effects. Besides, legislators should have to go on the record and vote to increase the rates.

  18. - OutOfState - Tuesday, Mar 12, 19 @ 2:31 pm:

    Ultimately, the debate comes down to whether you believe the income tax rate should be effectively increased every year to help pay for state government.

    The arguments above saying that state costs will increase, so we should let revenue increase by forgoing the indexed brackets essentially support raising the income tax by the inflation rate every year. Then yes, you’re raising more revenue relative to rising state costs, but that only really hurts people in the lower tax brackets, which defeats the purpose of the graduated income tax.

    I voted yes because I don’t think the income tax should increase relative to income every year. Since I don’t think future GAs/Govs should be able to make policy by inaction (i.e. not adjusting the tax brackets for inflation), the indexing should happen as a reflection of the current policy the GA/Gov believe is right for the state. If people disagree, then elect new officials who will raise taxes.

  19. - Three Dimensional Checkers - Tuesday, Mar 12, 19 @ 2:32 pm:

    Yes because everything should be indexed to inflation minimum wage, tax brackets, gas tax. It is how the government updates its regulations and taxes.

  20. - DuPage Saint - Tuesday, Mar 12, 19 @ 2:38 pm:

    Voted yes. Everything with a dollar amount should be index to inflammation. Misdemeanor crimes with felony starting at $300 are a prime example.

  21. - Platon - Tuesday, Mar 12, 19 @ 2:40 pm:

    It is already. If incomes go up so do tax collections.

  22. - thechampaignlife - Tuesday, Mar 12, 19 @ 3:10 pm:

    Everything should be indexed to inflation by default. Legislation should have to explicitly exempt itself from indexing if that is desired.

    To the question of what the GOP might negotiate if they come to the table, here are some ways in which they might limit a progressive income tax:

    1. Limit the number of brackets to 4 (e.g., $2M).
    2. Limit the difference in rates between adjacent brackets to 1.5% (e.g., 4%, 5.5%, 7%, 9%).
    3. Require the upper limit of any middle brackets to be no more than 10x the lower limit of that bracket.

  23. - JS Mill - Tuesday, Mar 12, 19 @ 3:15 pm:

    Voted no. Income tax rises and falls with the level of income.

  24. - Stuntman Bob's Brother - Tuesday, Mar 12, 19 @ 3:17 pm:

    So, who is likely to enter the upper brackets (the 3%) due to inflation over their working careers?
    The bottom half of the top 6%. Since the proposed tax should have included them (and more) to begin with, I voted no.

  25. - Smitty Irving - Tuesday, Mar 12, 19 @ 3:20 pm:

    Yes, use the same CPI used for TANF, Medicaid, in home care worker wages /s.

  26. - OutOfState - Tuesday, Mar 12, 19 @ 4:34 pm:

    ==Since the proposed tax should have included them (and more) to begin with==

    I’m open to being flexible with what the brackets should be, but I don’t think keeping income tax brackets non-indexed is the right way to go about changing their effective sizes long-term. If we want to change bracket size or increase marginal rates down the road, let’s write that into the law. But it seems foolish to use this roundabout way of accomplishing the same goal.

    IMHO legislators should be upfront with what their intentions are for the system by legislating what they mean, not what they hope will accomplish their goals in the least comprehensible way possible. That means actually building a tax system reflective of the majority’s will, not trusting marcoeconomic theory to do the same for them.

  27. - Left Leaner - Tuesday, Mar 12, 19 @ 4:43 pm:

    Yes. Exactly what IllinoisFirst said.

  28. - Mike - Tuesday, Mar 12, 19 @ 7:32 pm:

    I say we begin indexing it to inflation conditional on reaching a certain level of pension funding.

    Creates good incentives for politicians to prioritize the pension bomb.

  29. - Anonymous - Tuesday, Mar 12, 19 @ 7:55 pm:

    Every cent of the tax increase should go to state pensions.

  30. - South Side Sam - Tuesday, Mar 12, 19 @ 8:33 pm:

    Voted no.
    Why give the state an automatic raise ?
    Just more money to mismanage.

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