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Study: States with graduated tax systems cut rates more often than they raise them

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* Daniel Kay Hertz at the Center for Tax and Budget Accountability…

Because 97 percent of Illinois workers would see a tax cut as a result of the Fair Tax proposal, opponents have had to argue that that a graduated state income tax would make it more likely for Illinoisans to see tax increases at some unspecified point in the future.

This concern, however, is baseless. For one, Illinois’ flat tax has not prevented the state from enacting income tax increases in the last ten years. Instead, the flat tax has ensured that those tax increases have been borne by everyone, rather than targeted to the wealthiest who can most afford them.

This argument also relies on simply averaging together all changes in income taxes over the last century, rather than acknowledging that different time periods have seen radically different trends in income tax rates. In particular, it assumes that changes to the income tax more than 75 years ago are a more reliable predictor of what will happen in the 21st century than what has happened, well, in the 21st century — or even the second half of the 20th. Since 2003, states with graduated income taxes have cut taxes nearly two and a half times more often than they have raised them on the middle class. In any given year, a state with a graduated income tax had a roughly 13 percent likelihood of cutting taxes — versus just a five percent likelihood of increasing them on the middle class. […]

A better approach to understanding how a graduated state income tax is likely to change over time in Illinois in this century is to take a comprehensive look at the experience of other states during a more recent timeline. Helpfully, the Tax Foundation has a database of state personal income tax rates and brackets going back to 2002. […]

Using that database, CTBA recorded every instance of states with a “Fair Tax” raising or cutting taxes since 2003 (the first year in which we can do a year-over-year comparison with Tax Foundation data). […]

Our key finding: Since 2003, states with graduated income taxes have cut taxes nearly two and a half times more often than they have raised them on the middle class. In any given year, a state with a graduated income tax had a roughly 13 percent likelihood of cutting taxes — versus just a five percent likelihood of increasing them on the middle class.

Another way of looking at this is at the total change in averages rates — just to make sure that, for example, the smaller number of tax increases aren’t larger in size than the more numerous tax cuts. […]

The answer: No, they’re not. In fact, states with graduated income taxes have seen their average rates fall — both at the top and the bottom of their brackets — since 2002.

In short, only by ignoring the recent track record of all states with graduated income taxes, and cherry-picking one or two states or a particular, long-ago time period, can one support the claim that graduated income taxes tend towards ever-higher rates. The full picture shows that this argument simply doesn’t stand up to scrutiny.

The full list of states which have cut or raised their graduated rates over the years is here. Just four states plus DC have raised rates on $250K+ income since 2003.

…Adding… Illinois Policy Institute…

Yet again, progressive income tax backers are reinforcing why Gov. J.B. Pritzker’s “fair tax” amendment would open the floodgates for massive tax hikes on Illinois’ middle class.

1) CTBA’s list of progressive income tax states that have cut taxes makes use of the same lie that earned Think Big a “mostly false” rating from PolitiFact. They include states that essentially have flat taxes because their top rate affects most income earners, e.g. Georgia ($7k), Idaho ($10,890), Arkansas ($35k) and Louisiana ($50k). It’s not reasonable to compare these states to Illinois, where politicians have run up huge deficits and the push for a progressive tax is motivated primarily by a desire for more revenue.

2) The CTBA’s own analysis shows that when progressive tax states raise income tax revenue, the middle class overwhelmingly pays the price (33 tax hikes on income below $250,000 vs. 10 increases on income above $250,000.) CTBA Executive Director Ralph Martire has repeatedly stated that Illinois should raise far more revenue than even Pritzker’s plan would bring in.

3) The CTBA research shows that in progressive tax states, tax cuts disproportionately go to the wealthy and tax hikes disproportionately hit the middle class.

4) The most reasonable apples-to-apples comparison in Illinois’ current debate on whether to adopt a progressive income tax is Connecticut, which is the only state to swap a flat tax for a progressive tax in the last 30 years, and did so in the face of similar fiscal circumstances. It is noticeably absent from the CTBA’s tax cut list.

posted by Rich Miller
Tuesday, May 7, 19 @ 3:12 pm

Comments

So if we have a progressive/graduated income tax we have a better chance of see tax rates fall.

Ummm. Anyone seriously believe that will happen in this state?

Comment by Nonbeleiver Tuesday, May 7, 19 @ 3:19 pm
===Anyone seriously believe that will happen in this state?===

Yes, on the lowest levels when they raise the rates on the upper levels. lol

Comment by Rich Miller Tuesday, May 7, 19 @ 3:19 pm
If I’m counting right, 28 states plus DC have cut taxes at least once, and 21 states plus DC have raised (some have done both multiple times). Of the raises, 20 of the 22 have included income under $250K. So I agree with CTBA, that people making under $250K are almost always hit with the tax increases when they are passed.

Comment by Put the fun in unfunded Tuesday, May 7, 19 @ 3:23 pm
I’m amazed at the number of not-wealthy people who want to believe that if they look out for the rich, the rich will look out for them.

It’s never worked like that and it never will.

– MrJM

Comment by @misterjayem Tuesday, May 7, 19 @ 3:25 pm
Rich,

A agree that is a LOL. And of course, what you say lends credence to those who say this tax proposal is just the ‘nose in the camels tent’
for every progressive (i.e. higher rates) for those politicians who see this as an easy beginning for ever higher taxes on those who THEY perceive are not paying their ‘Fair Share.’

Comment by Nonbeleiver Tuesday, May 7, 19 @ 3:30 pm
===‘nose in the camels tent’===

The rich can afford their own tent. I want them out of mine.

Comment by PublicServant Tuesday, May 7, 19 @ 3:32 pm
“I’m amazed at the number of not-wealthy people who want to believe that if they look out for the rich, the rich will look out for them.

It’s never worked like that and it never will.”

Very True. And don’t expect those who pay little taxes to look out for the ‘them’ you seem to be referring to.

Not the way the world works at any level.

Comment by Nonbeleiver Tuesday, May 7, 19 @ 3:33 pm
@Public servant

And what tent of yours did they get into?

Comment by Nonbeleiver Tuesday, May 7, 19 @ 3:34 pm
My current 4.95% tent is where they’ve been hiding for decades.

Comment by PublicServant Tuesday, May 7, 19 @ 3:36 pm
Graduated income tax opponents are looking for an excuse, any excuse, to not have upper incomes pay more than the rest of us. So they go to the rich will leave, jobs tax, crushing the middle class, raising taxes more with a graduated tax. The rich will not leave, it will not hurt job creation, the middle class won’t be crushed and graduated tax states do not willy-nilly raise rates. It’s like they spin a lie-o-rama wheel.

Comment by Grandson of Man Tuesday, May 7, 19 @ 3:41 pm
@Public Servant.

Please make sense of your comment. On its own it makes none.

According to data proved by RNUG (which he backed up with a source) 1% of the filing taxpayers paid 22% of state income tax while the bottom 34% paid only 4%.

Comment by Nonbeleiver Tuesday, May 7, 19 @ 3:41 pm
What hypocrisy. The CTBA has already moved on to advocating for expansion of the income tax to retirement income and to expansion of the sales tax because they acknowledge the Fair Tax won’t produce nearly enough income.

Comment by driveby Tuesday, May 7, 19 @ 3:42 pm
Nonbeleiver (SIC), that’s your big takeaway here? Not the fact that the entire argument against the progressive tax rates is essentially bunk based on actual facts?

To each their own, I guess.

Comment by Fixer Tuesday, May 7, 19 @ 3:43 pm
$3465 in taxes is a lot more for a household making $70k a year in spending power than $37125 is for a household making $750k. That’s the difference Nonbeleiver (SIC)

Comment by Fixer Tuesday, May 7, 19 @ 3:47 pm
The CTBA admittedly ignored bracket creep.

Comment by Blue Dog Dem Tuesday, May 7, 19 @ 3:50 pm
@ Fixer - Tuesday, May 7, 19 @ 3:43 pm:

Not following your point. If you would wish to elaborate it would be appreciated. Thanks.

Comment by Nonbeleiver Tuesday, May 7, 19 @ 3:52 pm
That the argument against a progressive tax structure is nullified based on actual facts? Seems pretty self explanatory bud.

Comment by Fixer Tuesday, May 7, 19 @ 3:54 pm
Fixer - Tuesday, May 7, 19 @ 3:47 pm:

$3465 in taxes is a lot more for a household making $70k a year in spending power than $37125 is for a household making $750k. That’s the difference Nonbeleiver (SIC)

Yes you are correct. So what. It is the individuals money, and not the governments, to begin with.

Comment by Nonbeleiver Tuesday, May 7, 19 @ 3:55 pm
My point being that after state taxes, assuming each group pays out the taxes, $70k turns into $66535 and $750k turns into $712875. 4.95% makes a bigger impact on a individuals ability to help fuel the economy on lower income individuals, which make up the majority of income in this state.

That was my point with those numbers.

Comment by Fixer Tuesday, May 7, 19 @ 4:02 pm
–Not following your point.–

Only because you don’t want to. Because the following really can’t be dumbed down.

– In fact, states with graduated income taxes have seen their average rates fall — both at the top and the bottom of their brackets — since 2002.–

That’s exactly the opposite of what the Ricketts/Baise group is peddling.

Comment by wordslinger Tuesday, May 7, 19 @ 4:06 pm
That sound was the heads over at IPI exploding.

Comment by Shytown Tuesday, May 7, 19 @ 4:07 pm
===The CTBA has already moved on to advocating for expansion of the income tax to retirement income and to expansion of the sales tax because===

Dude, they’ve been advocating for those things for as long as I can remember. Sheesh, man, you lie so easily.

Comment by Rich Miller Tuesday, May 7, 19 @ 4:10 pm
==not-wealthy people who want to believe==

Marco Rubio calls them the soon-to-haves. Their ship will be coming in any day now. /s

Comment by Jocko Tuesday, May 7, 19 @ 4:10 pm
Daniel Kay Hertz is possibly the smartest person in Illinois.

Comment by Eugene Tuesday, May 7, 19 @ 4:11 pm
wordslinger
– In fact, states with graduated income taxes have seen their average rates fall

Fall to what? This article is not very clear on this issue. Lower than before the tax hike? Lower, but still higher than the original rate?

Please explain.

Comment by Nonbeleiver Tuesday, May 7, 19 @ 4:27 pm
Hilarious to call anything published by CTBA a “study.”

Comment by Phil King Tuesday, May 7, 19 @ 4:31 pm
NB, sorry I had s ome work to take care of.

=== 1% of the filing taxpayers paid 22% of state income tax while the bottom 34% paid only 4%===

It’s not how much each group pays, although rich dudes love to quote that. It is instead how much they have left after paying their income taxes as fixer points out so eloquently.

The vast majority of economic benefits over the last 30 or so years have gone to those making the most income, while middle class wages have stagnated. A graduated income tax will allow government to fund Illinois society more equitably on the backs of those reaping the most societal benefits, while leaving the middle class alone relatively speaking. Those upper income earners have been hiding behind the middle class wage earner, whose wages have stagnated, for decades, thus my reference to hiding in my tent, and my desire to have them get their own tent.

When someone has that much money left over, after paying the current tax rate (712K as in Fixer’s example), raising their taxes a little more wouldn’t put a dent in their ability to purchase their next yacht.

Some people with the means to help support the needs of those less fortunate than them, don’t feel the need to do so. Taxes, are society’s way of making those fortunate enough to help, actually help.

Comment by PublicServant Tuesday, May 7, 19 @ 4:39 pm
@ Phil King. Would you care to share evidence or provide an example of a CTBA report that was not a serious study with a sound methodology?

Comment by Scamp640 Tuesday, May 7, 19 @ 4:40 pm
It’s not how much each group pays, although rich dudes love to quote that. It is instead how much they have left after paying their income taxes as fixer points out so eloquently.

Certainly that is your opinion but I repeat it is THEIR money and not the governments. They were not put on Earth to ‘contribute’ what you and others think they should pay.

Comment by Nonbeleiver Tuesday, May 7, 19 @ 4:46 pm
===They were not put on Earth to ‘contribute’ what you and others think they should pay.===

And that is your opinion, sir. But, no matter, I’d say the Graduated Income tax amendment in Illinois is pretty much a sure thing, and when they pay THEIR taxes, society, through their elected representatives, will determine what their contribution WILL be.

Oh, and as for your belief that whatever someone earns is theirs to do with what they’d like, an awful lot of people think that sometimes capitalism doesn’t do that good of a job of determining what a person’s earnings should be.

Here’s an example. Judge Judy ‘earned’ 47 million last year. A Supreme Court justice makes 250K. Our society played a big part in determining Judge Judy’s income. It’s only FAIR that our society determines what her tax burden should be too.

Comment by PublicServant Tuesday, May 7, 19 @ 4:57 pm
@Scamp640

Oh man where to even begin…

Well first their “pension plan” completely flies in the face of every recommendation from professional actuarial standards.

https://www.illinoispolicy.org/ctba-pension-plan-unsound-unfair-and-unaffordable/

Second they continually misrepresent the consensus opinion of peer reviewed economic research. They even (laughably) claim that tax increases can boost growth, rather than the more common false claim that they just don’t harm it.

https://www.illinoispolicy.org/fair-tax-backer-spreading-falsehoods-misinformation/

Ralph Martire in particular has been saying there are ZERO peer reviewed studies showing tax increases impact economic growth, but…

https://taxfoundation.org/what-evidence-taxes-and-growth/

I quote: “Nearly every empirical study of taxes and economic growth published in a peer reviewed academic journal finds that tax increases harm economic growth.”

Comment by Phil King Tuesday, May 7, 19 @ 4:59 pm
It’s not the frequency of the the cuts but the total volume that is cut (or increased) that counts.

Comment by Cheeser Tuesday, May 7, 19 @ 5:04 pm
** I quote: “Nearly every empirical study of taxes and economic growth published in a peer reviewed academic journal finds that tax increases harm economic growth.” **

So wrong. Minnesota and California both raised taxes, and their growth was not harmed. America raised taxes during the Great Depression, Clinton’s presidency and under Obama, and that didn’t hurt growth.

The Illinois state income tax dropped in 2015, and we lost jobs that year. Economic growth was sluggish under the lower tax

Comment by Grandson of Man Tuesday, May 7, 19 @ 5:23 pm
@Phil

You’re really pulling from the IPI to “support” your argument? And you don’t see the irony there? Unless of course you believe the IPI is to be taken any more seriously than you take the CTBA. Please

Comment by Demoralized Tuesday, May 7, 19 @ 5:44 pm
The report states: “Some states make small periodic adjustments to their brackets to keep up with inflation; CTBA did not count those changes as tax cuts.”

Of course keeping up with inflation is not a tax cut. However, not keeping up with inflation is a tax hike.

Guess how Illinois’ current plan is structured?

Comment by City Zen Tuesday, May 7, 19 @ 6:04 pm
CZ, they didn’t index the minimum wage to inflation either, so at least they’re consistant on each side of the political spectrum.

Comment by PublicServant Tuesday, May 7, 19 @ 6:07 pm
== Hilarious to call anything published by CTBA a “study.” ==

Both CTBA and IPI are partisan organizations pushing their own visions. No argument there.

The one difference is numbers in a CTBA report have actual sources and add up. I may not always agree with their conclusions, but they can cite facts and do math … something IPI appears unable to do without cherry picking and slanting the data.

Comment by RNUG Tuesday, May 7, 19 @ 6:09 pm
—“The rich can afford their own tent. I want them out of mine.”
Oh, they will be out of yours if you consider yours the “state of IL”, and then watch your tent implode.

Comment by Taxedoutwest Tuesday, May 7, 19 @ 6:51 pm
–wordslinger
– In fact, states with graduated income taxes have seen their average rates fall

Fall to what? This article is not very clear on this issue. Lower than before the tax hike? Lower, but still higher than the original rate?

Please explain.–

Dude, I have no idea what you’re missing, or why you think I should explain it.

I have no idea what you’re talking about.

Cheers, mate.

Maybe take your palm pilot and hit the translate to eserpanto button.

Comment by wordslinger Tuesday, May 7, 19 @ 9:09 pm
===Oh, they will be out of yours if you consider yours the “state of IL”, and then watch your tent implode.===

I think your crystal ball is seriously flawed, dude.

Comment by PublicServant Wednesday, May 8, 19 @ 6:24 am
Ok, how about a simpler reason for being against the fair tax? The people in charge of spending the money in Springfield aren’t competent enough to spend it properly. I’m not going to site studies. I’m going to talk about trust and legislative history. Many of the leaders and legislators in Springfield are part of the crew that created this mess and they cannot be trusted to fix it. They only ever look at new revenues, never spending reductions, and more often than not, take new revenues and come up with new and wasteful ways to spend it, hence a complete lack of trust. I am not going to be impacted tax wise by this increase but will vote against it and anyone that supports it at every opportunity. Our representatives can’t be trusted to properly spend the resources they already receive, why should they get more?

Comment by Tim Wednesday, May 8, 19 @ 7:38 am
“And don’t expect those who pay little taxes to look out for the ‘them’ you seem to be referring to.”

I specifically mentioned the rich.

– MrJM

Comment by @misterjayem Wednesday, May 8, 19 @ 8:50 am
Tim: it’s not just representatives, most people are bad with money.

Comment by Da Big Bad Wolf Wednesday, May 8, 19 @ 8:58 am
Da Big Bad Wolf - Granted. But our representatives are worse than most and until that improves my vote is no on any tax increase and no for anyone in Springfield that votes for one.

Comment by Tim Wednesday, May 8, 19 @ 9:12 am
Tim the public servants are right about infrastructure needing to be fixed and bills need to be paid. Past mistakes don’t change this.
The two to six year cycle that public servants have make it hard to prioritize long term goals over short term fixes. Sometimes long term fixes aren’t very popular. So the fault is really on the electorate, not the public servants.

Comment by Da Big Bad Wolf Thursday, May 9, 19 @ 6:56 am