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Progressive income tax would be a very tough thing to do

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Illinois

* State Rep. Naomi Jakobsson (D-Urbana) explains her ideas for a progressive income tax…

While the [Illinois Policy Institute] has been saying that a progressive income tax “would increase the tax rate on 85 percent of Illinois taxpayers,” Jakobsson said her plan would mean lower income tax bills for 83 percent of Illinoisans.

“The ‘tipping point’ at which the rate would go over the present 5 percent would be at $106,000 per year,” Jakobsson said in the news release. “At the high end the rate would rise to 7.2 percent for a family earning $500,000 per year and continue to 8.5 percent for a family earning $2 million per year.”

Her tax schedule also would yield about 15 percent more revenue for the state, which Jakobsson has said could go to education and social services that have been cut in recent years.

Those rates wouldn’t be in the actual constitutional amendment, however. Legislators would be free to raise and lower the amounts.

* And I still believe that there’s very little chance that sponsors can get three-fifths in both legislative chambers to put this on the ballot. The Republicans in both chambers are adamantly against it.

And then there’s HR 241, sponsored by Rep. David McSweeney. The proposal states the belief that the Constitution shouldn’t be amended to permit a graduated income tax.

Rep. McSweeney’s resolution has 47 co-sponsors, meaning the other side will have to get everybody to vote for the proposal who hasn’t already signed on to the McSweeney measure. And while Senate President John Cullerton likes the idea, House Speaker Michael Madigan has been cool to it.

I’m just not seeing it yet.

posted by Rich Miller
Monday, Oct 7, 13 @ 10:04 am

Comments

This is one of those ideas that might get you an A in a college course. But it is potentially politically lethal, and a non-starter.

Comment by Langhorne Monday, Oct 7, 13 @ 10:13 am
I don’t think the possibility of movement toward a progressive income tax is even on the radar of most citizens.

It would take a long period of advocacy and education to even soften up the ground. I can’t see the GA moving on it without strong public support.

Comment by wordslinger Monday, Oct 7, 13 @ 10:19 am
The tipping point is $106,000? Wow - that’s certainly middle class. I imagine that a family in Champaign-Urbana (maybe the husband is a teacher and the wife works at the University) would see a tax increase. The restaurant on Green Street would face a tax hike.

Comment by 4 percent Monday, Oct 7, 13 @ 10:28 am
An important point that gets missed is that placing the amendment on the ballot does not amend the Constitution. It only lets the voters decide whether it should be amended. If it does pass because the voters want the change, it would still take a legislative act after that to make any change.
There may be a handful of legislators who vote to place the amendment before the voters, then actively oppose its passage.

Comment by Bobbysox Monday, Oct 7, 13 @ 10:35 am
Growing up in a progressive tax state — I recall days of being lectured at by “Conservatives” that a “flat tax” would solve all economic and fiscal problems in the state and country.

How’s that flat tax been working for us in Illinois for the last thirty years?

There are no silver bullets.

Comment by walkinfool Monday, Oct 7, 13 @ 10:42 am
===There may be a handful of legislators who vote to place the amendment before the voters, then actively oppose its passage. ===

Those folks would be pretty stupid, IMHO.

Comment by Rich Miller Monday, Oct 7, 13 @ 10:44 am
Tie it to pension reform, I’ll pay the progressive tax, and the state pays their retirees as agreed, including health care that was promised then weaseled out of.

Comment by Chefjeff Monday, Oct 7, 13 @ 10:47 am
Yes, legislators never do anything stupid. Never mind.

Comment by Bobbysox Monday, Oct 7, 13 @ 10:52 am
I’d be for the progressive income tax but maybe the easier approach is to just increase the personal exemptions and set a higher rate. If everything over $50k for a family of 4 was subject to a 7% tax, perhaps we’d collect the same revenue while the low income would pay nothing, someone making $100k would have an effective rate of 3.5%, etc. It’s like a 2 stage progressive tax without needing a constitutional amendment.

Comment by thechampaignlife Monday, Oct 7, 13 @ 10:54 am
The flat tax is protected by the Illinois constitution, just like the pensions. Any opening up of the constitution could result in the pension protection being abolished.

Comment by Anon Monday, Oct 7, 13 @ 11:02 am
One problem would be that this would further incentivize a tactic that many high earners from Illinois currently utilize - purchase a second property in Florida and claim it as your primary residence, thereby avoiding Illinois income taxes. I consistently hear of more and more people doing this. They don’t abandon their Illinois residence by any means, but the tax situation makes worth it to put the effort into establishing a “permanent” residence in Florida.

Comment by Just saying Monday, Oct 7, 13 @ 11:15 am
@ Anon,

You said:

The flat tax is protected by the Illinois constitution, just like the pensions. Any opening up of the constitution could result in the pension protection being abolished.

You got that right. Too many of the liberal supporters who want a progressive income tax and constitutional guarantees of pensions seemingly can not connect the dots of where this would lead.

They honestly believe that a progressive income tax would mean more money to the state (by continually hiking the rates for so-called upper income groups) and that money would be used to help fund pensions.

However, any income increases would be most likely used to expand the welfare state and for pork projects.

I am so old I can remember when the first state income tax was being ’sold’ to the public as a necessary means to fund education. And anyone can look to see that education has not been at the top of the list for that funding over the past four decades.

Comment by Federalist Monday, Oct 7, 13 @ 11:25 am
How is an upper income group “so-called” when they make more money than the average Illinois resident?

And I’m old enough to remember when the lottery would fund education.

Comment by Chavez-respecting Obamist Monday, Oct 7, 13 @ 11:32 am
This is like trying to fix a leaking damn by putting a bucket under the hole. The problem with the tax rate is not the rate itself, its the hole; its all the exemptions and credits. If we abolished all the exmptions and credits and people making over a million, 250,000, or even 106,000 a year or more actually paid the full 5%, we would have money to burn.

Same issue with ciorproate taxes. We keep raising the coproate tax rates to generate money because of all the tax breaks we provide. The problem is we smash the few buisnesses that cant get in the large deductions under our tax rate. Lets set a low rate, but no deductions. if its 2%, everyone pays 2% etc.

Comment by Ghost Monday, Oct 7, 13 @ 11:36 am
==The flat tax is protected by the Illinois constitution, just like the pensions. Any opening up of the constitution could result in the pension protection being abolished.==

But the state and federal constitutons’ contracts clauses would still prohibit reneging on the existing pension obligations and any pension obligations arising under explicit contractual provisions after the change, so eliminating the pension provision from the constitution would not affect the current problem and might not even help with avoiding future problems.

Comment by Anon. Monday, Oct 7, 13 @ 12:15 pm
==The flat tax is protected by the Illinois constitution, just like the pensions. Any opening up of the constitution could result in the pension protection being abolished.==

A proposed amendment regarding a progressive tax would be limited to just that. It’s not a Constitutional convention.

Comment by wordslinger Monday, Oct 7, 13 @ 12:18 pm
– thechampaignlife — nailed it. Take away all deductions (including exempting pension and social security income) and replace it with one new exemption of the first $150K - $200K of household income while taxing the rest at whatever rate (8% or so?) is needed to properly fund the state. This will also automatically raise the corporate tax rate since it is a fixed percentage of the individual rate.

Comment by RNUG Monday, Oct 7, 13 @ 12:22 pm
The article says it would increase the tax rate on 85% on the people in Illinois. But it also states that it will lower taxes on 83% of the people of Illinois. So I guess the question is how do you raise the tax rate for 85% and lower taxes for 83%.

Comment by Anonymous Monday, Oct 7, 13 @ 12:25 pm
===how do you raise the tax rate for 85% and lower taxes for 83%===

Two different people made those assertions.

Also, you can do that by vastly increasing personal exemptions toward the bottom of the scale.

Comment by Rich Miller Monday, Oct 7, 13 @ 12:42 pm
==The article says it would increase the tax rate on 85% on the people in Illinois. But it also states that it will lower taxes on 83% of the people of Illinois. So I guess the question is how do you raise the tax rate for 85% and lower taxes for 83%==
The first statement is from the Illinois Policy Institute. The second is calculated from Naomi Jakobsson’s proposed tax schedule levied on the actual income distribution of Illinois taxpayers. The basis for the Illinois Policy Institute’s claims is completely obscure. As far as I know they just made it up.

Comment by jake Monday, Oct 7, 13 @ 12:48 pm
==This will also automatically raise the corporate tax rate since it is a fixed percentage of the individual rate.==

Actually, the constitution sets a maximum ratio of corporate rate to individual rate of 8 to 5. There is nothing requiring the corporate rate to increase merely because the individual rate has increased.

Comment by Anon. Monday, Oct 7, 13 @ 12:51 pm
==maybe the easier approach is to just increase the personal exemptions and set a higher rate==
Some numbers on this are: You could exempt all income from tax up to $58,000, then levy 11% on the increment over $58,000. $58,000 is the 60th percentile of Illinois taxpayers declared incomes. So 60% of taxpayers would be completely exempt from the income tax. The crossover point at which one would pay the same 5% as under the current flat tax is again about $106,000. This would give even more relief to the lowest income groups but hit the highest income groups harder. Would higher income groups leave? The fact is that there are very few places in the nation that are comparable wealth generating machines as Chicago. Practically all of the top 1% income groups in Illinois live on the Chicago north shore or in the wealthy Chicago suburbs and their incomes depend on Chicago’s position as the primary commercial hub in the central region of the nation. And they must pay Illinois taxes on income generated in Illinois wherever they live. That principle has been established in the case of people who commute between Illinois and neighboring states. They pay their state income tax in the state where the income is derived.

Comment by jake Monday, Oct 7, 13 @ 1:09 pm
Silly to talk about increasing the tax rate on those most capable of paying more. They control those in power to make those changes. Who is anyone trying to kid here? If the 1%-ers had their way, they’d have those making UNDER 100K pay 10% and they’d pay nothing. That is the truth and folks just need to accept it. I saw a blurb online stating that “if you can afford to buy a senator, you don’t need a tax break”.

Comment by Anonymous One Monday, Oct 7, 13 @ 1:41 pm
Today Naomi Jakobsson ’s proposal might not pass but this is Illinois. In 4 years it might pass, Why? Because a huge percentage of the public doesn’t care if others have to pay higher taxes. As more productive people leave Illinois, Naomi Jakobsson’s progressive income tax rates are quite doable. She might not have the votes now but when pensions have to be “adjusted” because of the financial reality I wouldn’t bet against her. It’s hard to compete with Rick Perry’s 0% state income tax rates. If California taxes people over $46755 at 9.3% : Naomi Jakobsson higher tax rates could be here closer than you think. After all, Illinois is much closer to California in political outlook than Texas.

Comment by Steve Monday, Oct 7, 13 @ 2:06 pm
It’s worth talking about, though. We really need to keep talking about it.

Pension obligations -and- a taxation structure that misses where most of the income is, in this state, are the one-two punch that has got us in such a fix.

And like geniuses, we embedded -both- of these problems into our constitution as binding status quos. Yikes.

Comment by ZC Monday, Oct 7, 13 @ 2:10 pm
– It’s hard to compete with Rick Perry’s 0% state income tax rates.–

Californians voted to increase their taxes to keep them from becoming like Rick Perry’s Texas — dependent solely on oil and federal government payrolls.

I don’t think people are moving out of Beverly Hills or Silicon Valley for Ft. Worth or El Paso.

Year in year out, Texas leads the nation in claims for federal disaster relief. Yet when Sandy hit the East Coast, their GOP delegation voted against federal aid.

Comment by wordslinger Monday, Oct 7, 13 @ 2:17 pm
Jake:

Just a reminder- Illinois doesn’t have California’s weather. Higher income tax rates might actually get many productive people to declare residency in Florida or Texas. It’s already fairly common. There’s more than a few people in Chicago’s Gold Coast that don’t pay Illinois state income taxes.

Comment by Steve Monday, Oct 7, 13 @ 2:18 pm
–There’s more than a few people in Chicago’s Gold Coast that don’t pay Illinois state income taxes.–

That dodge is not as easy as you’re making it out to be. Unless you’re just living on investment income, and not engaged in an ongoing enterprise located in Illinois, it’s not easy at all.

Comment by wordslinger Monday, Oct 7, 13 @ 2:28 pm
Can someone post Jakobsson’s exact brackets and rates? Or has she not disclosed them yet?

Comment by Bars Monday, Oct 7, 13 @ 2:55 pm
Wordslinger, I think the trend might be more common than you realize. I get it that it’s not easy, but it’s far from impossible and a very real practice that many Illinoisians already engage in. And it’s not just the Gold Coast. I personally know that it’s a trend among downstaters too, and I don’t just mean south of I-80, I’m talking Southern Illinois. Shocking, I know!

Comment by Just saying Monday, Oct 7, 13 @ 2:58 pm
Could the difference between IPI and Jakobsson’s tax assumption be attributed to the “temporary” income tax increase? Jakobsson is making the assumption that all those under $106k will be 5%, whereas IPI is probably still assuming the increase will sunset.

Which brings up another intersting point, under Jakobsson’s plan, is the low end of the progressive tax at a rate of 5%?

Comment by Phenomynous Monday, Oct 7, 13 @ 3:09 pm
Assume? Sunset is current law.

Comment by Bars Monday, Oct 7, 13 @ 3:18 pm
Illinois could enact a coal severance tax like most other coal producing states have. Illinois coal production is drastically increasing due to exports. This money could be used to pay down the state pension obligations.

Comment by Anon Monday, Oct 7, 13 @ 3:20 pm
Wordslinger:

There are many retired people who live part of the year in the Gold Coast and part of the year in Florida. As long as they stay 6 months and a day outside Illinois- they don’t have to pay a state income tax.

Comment by Steve Monday, Oct 7, 13 @ 4:48 pm
Steve, retirement income isn’t taxed here.

Comment by Rich Miller Monday, Oct 7, 13 @ 4:57 pm
Steve: I think non-residents have to pay on their Illinois-sourced income. So it depends what you have.

Comment by Excessively Rabid Monday, Oct 7, 13 @ 5:02 pm
Our state and local tax system in Illinois is one of the most regressive among the 50 states, imposing a much heavier proportionate burden upon those in the bottom 20% than upon the 1%. The only practical way to reduce that regressivity is to enact a progressive income tax, the way the majority of the 41 states with an income tax have already done. Including two of the states that Illinoisans move to — Wisconsin and California.

Naturally, every Republican legislator opposes making our tax system less regressive. The last two who voted for an income tax hike were Roger Eddy and Jerry Mitchell, who voted for it in committee about five years ago.

The GOP caucus has gotten more conservative since then. Moderates such as Beaubien and Mulligan have been replaced by either more conservative Republicans or by Democratic targets who won’t vote for any tax hike. I’m afraid Rich is right that there’s no likelihood that the House will put 71 votes on an income tax amendment.

Comment by reformer Monday, Oct 7, 13 @ 5:55 pm
==Which brings up another intersting point, under Jakobsson’s plan, is the low end of the progressive tax at a rate of 5%?==
Under Jakobsson’s plan, the low end starts at 3%. The effective rate crosses 3.75% at approximately $42,000, which is about the 50th percentile in the distribution of Illinois incomes. The IPI claim is completely divorced from reality. There is no real calculation that comes anywhere near them.

Comment by jake Monday, Oct 7, 13 @ 6:05 pm
I have no issues with a progressive tax in theory. The problem is, I don’t trust the money grubbers in Springfield not to jack up the middle and upper class rates willy-nilly. A flat tax protects us from that.

Comment by Chris Monday, Oct 7, 13 @ 6:44 pm
For those who want some to pay a higher tax, the first thing I would like to know is how much in state and federal taxes they paid and then how this would affect them.

Even though I am not advocating higher taxes for anyone, I would be willing to share the amounts paid on my tax returns if others would do the same.

Then a really honest discussion could begin.

Otherwise, this whole issue can be merely grandstanding and posturing.

Comment by Federalist Monday, Oct 7, 13 @ 7:10 pm
Federalist @ 7:10 pm:

I’ve been upfront about being retired so this should not come as a surprise. At the state level 2012 state income tax was $0 under the current rules since the vast majority of the income is pension, SS and Roth IRA distributions.

I’ve also suggested various scenarios of taxing pension income, which would be against my personal self interest. How much I might have to pay would depend on the future amount exempted of pension income, if any. Under some of the scenarios I have suggested, it could be anywhere from $0 to several thousand dollars out of my pocket.

Comment by RNUG Monday, Oct 7, 13 @ 9:12 pm
==Can someone post Jakobsson’s exact brackets and rates? Or has she not disclosed them yet?==
The exact brackets are as follows; 3% up to $18,000, 4% for increment above $18,000 up to $36,000, 5% for increment above $36,000 up to $58,000, 6% for increment above $58,000 up to $95,000, 7% for increment above $95,000 up to $196,000,8% for increment above $196,000 up to $500,000, 9% for increment above $500,000 Those breakpoints are the bottom 20%, the next 20%, the next 20%, the next 20%, the next 15%, the next 4%, and finally the top 1%. This schedule gives effective tax rates of 3% at $18,000, 3.5% at $36,000, 4.1% at $58,000, 4.7% at $95,000, 5.9% at $196,000, 7.2% at $500,000, and 8.5% at an income of $2 million.

Comment by jake Tuesday, Oct 8, 13 @ 12:15 am