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Maybe “stability” is not the word Pritzker should use?

Monday, Mar 25, 2019

* Gov. JB Pritzker has used variations on the word “stability” a lot since taking office, and he has often cited his graduated income tax proposal as part of that road to what I would concur is much-needed stability for the state

Pritzker is expecting the state to take in $3.4 billion in additional revenue through this system and says it will provide a climate of stability for skittish business owners.

“The most important thing we are accomplishing is stabilizing the finances of the state,” Pritzker said.

But does his graduated income tax proposal do that? Revenues from the flat tax, some contend, are more stable and predictable. But why?

* Well, the Civic Federation took a look at the latest information released by Gov. Pritzker’s office and found that it contains a “heavy reliance on volatile high incomes.” From the report

While the top income band [$500,001 or more] had the highest growth [8.45 percent average annual growth], it also swung from a maximum of over 39% in 2012 to loss of almost 18% the following year. The reason for this volatility is that upper incomes depend more on investment and business income, which varies with stock market performance and the business cycle. Lower income ranges, which rely more heavily on labor income, are more stable from year to year. In a recent analysis of Illinois’ economic outlook, Moody’s Analytics pointed to the State’s current above-average reliance on non-wage income such as dividends and interest and its vulnerability to a downturn in the stock market.

Upper-income volatility has important implications for the Governor’s plan, which concentrates its tax increases on the highest earners. While a top-heavy tax structure will lead to higher revenues on average, it will also increase their variance, as explained in a 2014 study by the Commission on Government Forecasting and Accountability. As the General Assembly weighs the Governor’s proposal it should consider the impact on revenue volatility and make appropriate plans, such as building up a rainy day fund.

That COGFA report referenced above is here.

- Posted by Rich Miller        

23 Comments
  1. - Perrid - Monday, Mar 25, 19 @ 11:26 am:

    Anything is more stable than the 2 year impasse, where we were spending like the income tax was (more than) 5% when it was really 3.75%.


  2. - Honeybear - Monday, Mar 25, 19 @ 11:29 am:

    The wealthy and privileged are just trying
    to get out of paying their fair share.
    IMO
    Even if they are volatile the wealthy will do just fine during any kind of downturn
    Diversification and battalions of wealth managers will secure the fortunes just fine.
    Which is why
    Prizker should stay the course.


  3. - DuPage Saint - Monday, Mar 25, 19 @ 11:32 am:

    I am beginning to think he should just raise the flat tax we have now up to 6% and give lots of credit or deductions to those under a certain income. If possible. And do in now.


  4. - Steve - Monday, Mar 25, 19 @ 11:36 am:

    The bigger the percentage of the state income haul paid by the 1% : the bigger the revenues swings . New York state has the 1% paying 44% of the state income tax haul. Lots of praying that the stock market stays up so those stock options can be exercised .


  5. - Grandson of Man - Monday, Mar 25, 19 @ 11:47 am:

    Income disparity is too high, even with volatility of higher incomes. Gains have disproportionately gone to the richest. Rauner’s income skyrocketed in 2015, the year he launched his budget sabotage and war on unions. What happened in Illinois under Rauner is the poster child for raising taxes on the rich.


  6. - City Zen - Monday, Mar 25, 19 @ 11:47 am:

    JB’s needs a revenue mascot like Squeezy was for pensions. How about Stabili-Buddy?


  7. - wordslinger - Monday, Mar 25, 19 @ 12:03 pm:

    The property tax is stable. Real estate ain’t going anywhere. I doubt if many would prefer more reliance on that source.


  8. - Reality Check - Monday, Mar 25, 19 @ 12:20 pm:

    The only aspect of providing a constitutional basis for a graduated income tax that is predictable is that it will increase. California’s 9.3% bracket starts at $53.980 (107,960 for married couples). With Illinois’ state pension overhang (at least 135 billion) how long will it take to catch up to California? The only way any “stability” will be achieved is by increasing taxes on the middle class. Property tax relief is a pipe dream. The only thing certain is that Illinois taxes will go up … and up … and up.


  9. - Last Bull Moose - Monday, Mar 25, 19 @ 12:31 pm:

    After the budget debacles of Rauner, stability has a nice feel. JB’s problem is that he is not asking for enough revenue to stabilize the state.

    Spending restraint on new initiatives is needed to get to stability. We have overspent for years. Time for frugality.


  10. - Rich Miller - Monday, Mar 25, 19 @ 12:36 pm:

    ===We have overspent for years===

    On? Certainly not DCFS or a myriad other things the government is supposed to be doing.


  11. - City Zen - Monday, Mar 25, 19 @ 12:41 pm:

    ==California’s 9.3% bracket starts at $53.980 (107,960 for married couples)==

    Wait, California has married tax brackets? What a novel concept.


  12. - Three Dimensional Checkers - Monday, Mar 25, 19 @ 12:41 pm:

    A substantial stock market decline usually correlates with a recession. There are some drops in the market, but usually a big drop in the market comes with a recession, which hurts wage workers and wealthy people, so thus leads to instability for tax collection.

    Maybe Illinois should institute a wealth tax. Many wealthy people can manipulate their assets so that their income is relatively low compared to their net worth. A wealth tax would prevent the rich from deferring income to get around the taxes.


  13. - Lucky Pierre - Monday, Mar 25, 19 @ 1:02 pm:

    A wealth tax? Check your pocket constitution, it’s not in there at the Federal or State level is it?

    If it were constitutional and Illinois was the first state in the union to implement a wealth tax, how much “getting around” the tax would there be by picking the wealthy picking up stakes?


  14. - Reality Check - Monday, Mar 25, 19 @ 1:18 pm:

    Three Dimensional - That’s not a bad idea. Think of all the accountants, auditors and lawyers the state would have to hire to determine the proper valuation of real estate, business interests and personal property owned by the wealthy. And the corresponding cottage industry that would be created in the private sector to contest the valuations. It would be a massive job creation act for those professions.


  15. - Jibba - Monday, Mar 25, 19 @ 1:23 pm:

    CZ, would it help you to think about a married tax bracket as a “marriage bonus” instead of calling it a “marriage tax” when a married bracket is lacking?

    There are plenty of married couples living on one income or where one spouse earns far more than another, which would provide them a lower tax rate using a married bracket, assuming one existed. Why should they receive a cut relative to individuals or couples simply living together?


  16. - Three Dimensional Checkers - Monday, Mar 25, 19 @ 1:39 pm:

    Article IX does not say anything about a wealth tax. The closest thing I can see is Section 5 which I believe abolished the old personal property taxes. Article IX Section 1 reserves any power of taxation not otherwise limited by the constitution to the General Assembly.


  17. - Last Bull Moose - Monday, Mar 25, 19 @ 1:52 pm:

    To clarify, we have overspent in that we have spent more than we are willing to pay in taxes.

    I realize how hard it is to cut spending. Social Services agencies like DCFS get federal matching funds and tied federal rules that make change difficult. To try a new approach often requires a federal waiver, which does not just magically appear overnight.

    DCFS does not have much follow up on its wards. They don’t have a good measure of their footprint; what percentage of children live in families investigated by DCFS sometime during their first 18 years.

    DCFS does know that their intake rates go up after a horrific case hits the news. Everybody wants to protect themselves. It is not clear that the decision to take custody should be driven by the press coverage on an unrelated case. It is the decision to take custody that drives many costs for years to come.

    There are areas in DCFS where more money could help the current system work better. It is just not clear that the current system will ever do a consistently good job of protecting and raising children.


  18. - Homer Simpson's Brain - Monday, Mar 25, 19 @ 1:53 pm:

    Lucky Pierre, we already have a wealth tax in this state. It is called property tax. Second, the General Assembly has the power to tax any way they please, which is why we have excise taxes on alcohol, sales taxes on merchandise, an income tax, etc.


  19. - City Zen - Monday, Mar 25, 19 @ 2:44 pm:

    ==Why should they receive a cut relative to individuals or couples simply living together?==

    That’s a good question for the federal government, NY, CA, etc…


  20. - Bill Baar - Monday, Mar 25, 19 @ 2:46 pm:

    One of Conneticut’s problem with a Progressive Tax is the high earners work in finance and their incomes bounce around a lot. Atlantic had an article on this July 2017


  21. - Shrimp gumbo - Monday, Mar 25, 19 @ 2:59 pm:

    Looking at the overall tax burden, Illinois is way up there. So, assuming there really is nowhere to cut (I don’t know), how is it possible that the infrastructure is crumbling, social services are destitute, pensions are near insolvency, and so on? All that money has to be going somewhere… I know it’s Illinois, but it can’t all be going to corruption. Can it? Seriously, where is all that money going?


  22. - MyTwoCents - Monday, Mar 25, 19 @ 5:16 pm:

    Shrimp gumbo, the overall tax burden being high basically comes down to 1 thing: education. By keeping the income tax artificially low for decades and not adequately funding education the state basically forced local governments to increase property taxes to fund education. Additionally, the low income tax rate meant the pensions were shorted. Now there’s billions in pension debt payments that have to be made and if the revenues were at a level to match expenses for decades and the debt wasn’t there, all those billions in pension payments could be directed towards education and state services.


  23. - JIbba - Monday, Mar 25, 19 @ 7:36 pm:

    ==That’s a good question for the federal government, NY, CA, etc===

    Not sure why we should ask them about Illinois tax policy.


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