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* Crain’s Chicago Business posted my column early this week, so here you go…
We’ve been hearing a lot of debate lately about the merits and demerits of a graduated, or “progressive,” state income tax.
Illinois’ constitution mandates a “non-graduated rate.” Everybody from the poorest to the wealthiest currently sends 4.95 percent of their taxable personal income to the state.
The Center for Tax & Budget Accountability recently unveiled a graduated income tax proposal that it claims would reduce taxes for 98 percent of Illinoisans. Under its plan, income over $300,000 per year would be taxed at an 8 percent rate. The highest rate, 9.85 percent, would apply to annual income above $1 million.
The center’s plan would raise an estimated $2 billion in its first full year. By contrast, last year’s income tax hike—to 4.95 percent from 3.75 percent—was projected to raise about $5 billion. But that’s only if you include revenue from the increase in the corporate income tax rate, which jumped to 7 percent from 5.25 percent. The plan assumes the corporate rate will remain the same, but that’s not what happened the last two times personal rates were hiked.
Illinois’ constitution has a limit on how high corporate tax rates can go. Corporate rates “shall not exceed the rate imposed on individuals by more than a ratio of 8 to 5.”
The constitution doesn’t require an 8-5 ratio, the language simply serves as a cap on corporate taxation. But if the state changed to a graduated tax and then based corporate income taxes on the top personal rate, it would result in a whopping 15.76 percent corporate rate—more than double today’s.
So, clearly, some more debate is in order here, particularly what to do about our 8-5 ratio, since large companies often avoid state income taxes while small businesses pay full freight.
And addressing this issue is even more important when you consider what I’m about to tell you.
The Commission on Government Forecasting & Accountability, which crunches numbers for the General Assembly, did a study in March for Rep. Rob Martwick (D-Chicago). Martwick wanted to know how much additional revenue the state would need through 2045 to pay for expensive things like pensions and the new school funding law and asked that they calculate all other spending growth by using the consumer price index.
COGFA found that Illinois would need to
Click here to read the whole thing before commenting, please. Thanks.
posted by Rich Miller
Friday, May 4, 18 @ 11:33 am
Sorry, comments are closed at this time.
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People should get used to the idea of a 7-8% income tax as well as continually growing property taxes.
That is if spending basically holds stagnant.
Any politician promising new spending (I’m sorry…investments) is lying to you because the tax increases are needed to pay just for what little we get as it is.
The progressive tax is largely a fraud because we need a 10% rate probably at the top end and 7% at the bottom end largely if we truly wanted to balance the budget.
If you really want to be frightened think about how that is in a case of no recession.
If we have another good recession Illinios will become largely ungovernable.
Comment by Anon Friday, May 4, 18 @ 11:48 am
Rich- or others with knowledge- can you elaborate on the sentence in the article:
“but so much spending is guaranteed by law (90 percent of the budget was either court-ordered or on autopilot during the impasse) that huge cuts are not likely”.
If you can point me to articles/books/academic papers that discuss the above sentence.
How did it end up that so much of state spending is governed by court orders or on autopilot? I am sure the two year budget impasse is a factor in the short term but what about long term?
Rich- do you have any suggestions on this mess?
Thx
Comment by JerryB Friday, May 4, 18 @ 11:53 am
Meanwhile our local governments are the biggest obstacle to the growth that could prevent us from needing to go so high. Land use regulations limit the density of construction allowed & ban construction of walkable neighborhoods that are successful at attracting people to live there. If taxes were the #1 thing standing in the way, housing purchase prices in Chicagoland would be no higher than elsewhere because there wouldn’t be sufficient demand to keep prices up.
The most effective thing state government could do to help relieve fiscal pressure without defaulting on obligations would be to ban any local land use regulations that limit construction density such as parking space minimums, minimum lot sizes, height limits, setbacks, or maximum number of units per lot. It’s crazy that a majority of Chicago’s land area is zoned to only allow single family housing.
Comment by Blake Friday, May 4, 18 @ 11:54 am
There is $2 Billion/year to be found by taxing retirement income like the majority of other states. That would be a nice way to hold the line on tax rates.
Comment by SAP Friday, May 4, 18 @ 11:55 am
Required reading for all voters and candidates for office
Apparently, a huge spending increase on new “progressive” programs and tax cut for middle class families all paid for by a progressive income tax on “millionaires and billionaires” is more smoke and mirrors from the usual suspects.
Hopefully the media will remind candidates of this for the next 6 months and demand specifics and not allow them to make empty promises to voters that mislead them on the disastrous budget consequences that will continue whoever wins next Fall.
Comment by Lucky Pierre Friday, May 4, 18 @ 11:55 am
===There is $2 Billion/year ===
I had it in the column, but it got cut. Either way, the issue proved to be a killer for Kennedy and Biss in the Democratic primary. Not gonna happen. Get over it.
Comment by Rich Miller Friday, May 4, 18 @ 11:57 am
===If you can point me to===
https://www.google.com/
Comment by Rich Miller Friday, May 4, 18 @ 12:02 pm
==Rich- do you have any suggestions on this mess?==
That particular suggestion by Rich (that much of our spending is court-mandated/autopilot) is noncontroversial. This is why the “just spend less” malarkey by certain corners isn’t intellectually honest. Revenue has to go up, and everyone has to hurt for it. It’ll destroy the state, but so will the alternatives.
Comment by Chris Widger Friday, May 4, 18 @ 12:05 pm
Pretty much tells us what most of us here already knew. Pay more now or a lot more later.
Comment by RNUG Friday, May 4, 18 @ 12:17 pm
Blake- I have read articles in the Daily Herald and the NWHerald about NIMBY suburbanites who are against dense housing developments. But at the same time these people with their $200-$300,000 homes and half-acre lots whine about property taxes.
In another forty years when the fire economy (oil,coal,etc.) runs out or gets prohibitively expensive, and we all have to live close to cities to stay within electric car battery range or mass transit then land use regulations won’t mean much.
In many parts of the world people are flocking to cities due to climate change and I think in the future when oil runs out (most forecasts say 2050 or the end of the century), the US will be very city focused with dense metro area populations.
Comment by JerryB Friday, May 4, 18 @ 12:21 pm
–since large companies often avoid state income taxes while small businesses pay full freight.–
That is indeed the case. If you sell your goods and services in Illinois, you’re on the hook. If you’re an exporter, you’re in the clear.
Most small businesses are S corps. and paying at the individual rate, anyway. Very few are paying at the corporate rate. Perhaps an AMT for the big dogs, and just lining up the corp. rate with the individual rate would do the trick.
Comment by wordslinger Friday, May 4, 18 @ 12:23 pm
Seems like the CTBA report did their cause more harm than good. On its surface, the huge rate hikes on the wealthy present themselves as “problem solved”, only to be qualified in the fine print that it’s merely a door ding in a head-on collision. Anyone reading the fine print should be extremely concerned, rich or poor.
Easy to see why JB is mum on the subject.
Comment by City Zen Friday, May 4, 18 @ 12:26 pm
The question is about fairness. Who will eat what proportion of sacrifice so at least we don’t have the social and economic damage of the budget crisis.
We are now forced to consider Rauner’s way, which is to get huge cuts from people who are not anywhere near his economic universe, or hopefully another way, which is to have a fairer system. For years people like Rauner have been blessed in Illinois with high incomes and low state income taxes. It’s only fair at this critical time to require that they pay more, to offset damage to those who are not even remotely near Rauner economically.
Comment by Grandson of Man Friday, May 4, 18 @ 12:33 pm
Well a Chicago Casino, one in the South burbs to get some of that Revenue going to Indiana, Put video gaming at Ohare & Midway, legalize tax Cannabis and then maybe a bake sale, should raise some extra $$$ if weed gets legalized.
Comment by times up Friday, May 4, 18 @ 12:34 pm
Every form of revenue needs to be debated and thoughtfully considered.
Cannabis just needs legalized. The more we dawdle the market will eventually get saturated by surrounding states and we will miss out on a great deal of revenue.
Comment by Generation X Friday, May 4, 18 @ 12:40 pm
I’ve always assumed the graduated income tax proposal was a two-step thing for the left (you know, that thing Rauner doesn’t know how to do - see other thread). First step, get the constitution changed. For that, you need the voters, so the proposal HAS to look like a cut to a majority of people, with the ‘rich’ taking the hit. Second step, raises the rates to whatever is required to solve Illinois’ financial mess. Of course, voters fearing the second step will cause the first step to fail.
Comment by Rasselas Friday, May 4, 18 @ 12:45 pm
Seriously, there are things that could be done.
1) Revisit all the consent orders the State has entered in to. See if the State can get out of or adjust them in view of changed circumstances or changed Federal law. It would be a better use of legal fees than trying to defend Rauner’s losing actions.
2) As proposed, take a serious look at local regulation. It seems almost impossible to get anything done in Springfield without the right partners or right campaign contributions. Same thing in Chicago; if you did anything there you automatically figured a 10% management fee / corruption tax into the budget. And it’s not so much the “fees” as it is the delays getting all the ducks in a row.
3) All government supported economic development should require hard verifiable goals in terms of tax revenue and jobs created, and should have clawback clauses if the stated goals are not met.
4) I realize it is only about 10% of the budget, but we as a State collectively need decide what is just “nice” to have and consider cutting it out. Do away with any discretionary legislator initiatives; in other words, cut out the pork that still exists.
5) No new spending / initiatives unless (a) approved by a supermajority and (b) a funding source is identified.
6) Do the cost shift of the current pension funding for teachers to the local school districts but phase it in over 4 to 8 years. That way it can possibly be absorbed without higher local property taxes. It’s a long term problem / need; you don’t have to solve it in one year.
7) Review all business tax exemptions for cost effectiveness. If the exemption is not achieving the stated goals, eliminate it.
8) Do the same for personal income tax.
9) I know it is the third rail, but tax retirement income. Decide what level retirement income should be exempted or taxed at, then phase it in over a number of years.
These are just a few things that could be done. I’m sure other people also have lots of good ideas / suggestions. And I’ve probably missed some that I have suggested in the past.
Comment by RNUG Friday, May 4, 18 @ 12:46 pm
Regarding the ‘guaranteed’ spending - it isn’t quite as guaranteed in normal times as it looks in an impasse. For example, in an impasse, the payrolls has to be paid. But in a regular budget, the payroll can be cut, pay rates can be negotiated, benefit levels can be cut/negotiated. To the extent services in categories that are not court-mandated services are privatized, those contracts would not be mandated during an impasse.
Comment by Anonymous Friday, May 4, 18 @ 12:50 pm
==The more we dawdle the market will eventually get saturated==
Come August you only need to drive four hours to Canada.
Comment by Jocko Friday, May 4, 18 @ 12:51 pm
If we legalize marijuana we can bring in a lot of revenue and save a lot of money by not putting people through the criminal justice process.
Comment by Grandson of Man Friday, May 4, 18 @ 1:01 pm
===we can bring in a lot of revenue===
Yes, it will generate revenue. A lot? Well, that’s relative. Billions are a lot. Hundreds of millions are just welcome cash.
Comment by Rich Miller Friday, May 4, 18 @ 1:05 pm
The next 25 years are going to be pretty interesting, and difficult, in Illinois. The state is already on the “states with the highest tax burdens” list no matter how you slice and dice it. There are any number of recommendations that won’t work, so instead of spitting into the wind for the next 25 years, start saving so you can leave.
Paying high taxes for substandard services and crumbling infrastructure doesn’t make sense. Many have already left and more are planning to do so. This is going to end up being an example of greed and power run amok. Watching from a distance is much safer.
Comment by SSL Friday, May 4, 18 @ 1:15 pm
=legalize tax Cannabis and then maybe a bake sale=
Oh, goody, I love brownies. At the State Fair, maybe?
Comment by James Friday, May 4, 18 @ 1:31 pm
The reason that I asked COGFA for these projections was to bring some light to the reality of our financial condition. If there is one real “problem” in Illinois is that we live for today without a care about how it affects tomorrow. I identify strongly with progressive idealogy, but I am not an idealogue. I will be happy to listen to any solution proposed, but before we discuss the solution, we need to agree on the math. There is no “Democratic math,” or “Republican math.” There’s just MATH. I not only asked them for this projection, but I asked them for economic growth projections too. We need to find a way out of the next 27 years. If we do that, Illinois absolutely CAN be a low tax state. If however, we fail to address our problems, we will force future legislatures and generations into far higher taxes. 6.45% is what we need right now. If we don’t start addressing these problems, that required rate will rise and rise and rise. How does 8.5% flat sound? I have a 19 moth old son and I will not stand by silently while we are on that path. When I proposed my plan, I took a moderate tax structure (Wisconsin) with smooth and progressive rates and showed exactly how that money could be used to solve problems. Pensions? My plan added an additional $1 Billion on top of the required payment each year. After 27 years, it would save the state $122 Billion in the repayment of that debt (not to mention the massive improvement in our credit ratings which would save millions in interest on bond issuances). High property taxes? I put a historic $2 Billion into direct property tax relief and an additional 1/2 Billion in sales tax relief. Illinois needs to be more “business friendly?” The largest tax most businesses pay is property taxes. If you lower that, and sales taxes, you help every single business in the state. If we lowered our very high property taxes, and accelerated the payment on our debt, in 20-25 years we would be looking at windfall budget surpluses. When that happens, we can then lower taxes responsibly. However, if we refuse to acknowledge the problem, and tax less than we spend, then we will only make the situation worse and worse and worse. People claimed that a 6.27% tax on middle income was too high. Here’s the truth though: Although we have a 4.95%, we are running our state on a 6.45% tax. We just don’t require anyone to pay it, and we put the unpaid portion on a ‘credit card” for future generations to pay at a much higher rate. I will honestly admit that I cannot say that a progressive tax is the right solution. Maybe there are better solutions. But, I took the time to create a solution, and one that is based on math, the reality of our situation and in the long road would put us on the path to prosperity. I’ll be happy to hear how it’s wrong and I’ll be happy to hear a better alternative, with this caveat: I showed you my math. Now you show me yours.
Comment by Rob Martwick Friday, May 4, 18 @ 1:41 pm
==The question is about fairness. Who will eat what proportion of sacrifice==
CTBA spelled it out pretty clearly. The “rich” eat the entire sacrifice and it doesn’t come close to solving our problems.
==The state is already on the “states with the highest tax burdens” list no matter how you slice and dice it.==
There’s the rub. You can back into whatever progressive tax rates you think will generate the revenue needed, but it does nothing to address high property taxes. Imagine dual-income families paying 7-8% income taxes on top of the nation’s highest property tax bill. That is untenable.
Comment by City Zen Friday, May 4, 18 @ 1:47 pm
Rep Martwick, I sure hope you are one of the budgeteers. You seem level headed and disciplined. I appreciate your hard work on this difficult issue. Thank you. I hope you find good faith partners in your work. N
Comment by Honeybear Friday, May 4, 18 @ 1:56 pm
There is still spending cuts that can be made, but clearly more revenue is needed, especially an extra bump, for some period of time. The problem is that politicians don’t want more revenue to pay what is past due, but to expand government. Until we face the fact that we have to hold the line on spending, we will never get out of this mess. Listen to Pritzker. He wants to raise taxes to bring in more money and at the same time increase spending. He is clueless.
Comment by Say no to big government Friday, May 4, 18 @ 2:01 pm
Sorry about the N at the end of the post. Fat fingers on an old phone.
But question I do have. Why do R’s keep talking about a certified revenue estimate? What’s up with that?
Comment by Honeybear Friday, May 4, 18 @ 2:03 pm
Let’s just tax all billionaires who run for office a billion dollars each. Adjust the filing fees to be a percentage of assets. Let’s squeeze some value out of those civic-minded billionaires.
Comment by Suburban Mom Friday, May 4, 18 @ 2:05 pm
– Why do R’s keep talking about a certified revenue estimate? What’s up with that?–
It’s a way to pretend that when GOMB and COGFA are .3% apart on revenues that there’s a major issue.
Because 99.7% agreement on an annual revenue estimate is a big deal, if you want to avoid other issues.
Comment by wordslinger Friday, May 4, 18 @ 2:07 pm
==the rich eat the entire sacrifice and it doesn’t come close to solving out problems==
We have to start somewhere or as pointed out, the debt grows larger and the sacrifices will be even bigger.
However, as to the “rich”—–should the poor pay more? Middle class (who then sink into poor)?
Comment by Anonymous Friday, May 4, 18 @ 2:10 pm
===Trouble is, state revenues aren’t coming in as fast as the COGFA formula’s projected spending growth. State revenues have increased by an average of just 2.4 percent per year over 20 years===
2.4 percent revenue growth is was you get with a flat tax dependent on the stagnant wages of the poor and middle class over the last 2 decades. Ask cogfa to estimate revenue growth over the past 20 years if we had a progressive income tax in place like the one proposed by ctba.
Comment by PublicServant Friday, May 4, 18 @ 2:31 pm
======There is $2 Billion/year ===
I had it in the column, but it got cut. Either way, the issue proved to be a killer for Kennedy and Biss in the Democratic primary. Not gonna happen. Get over it.==
I think I got the $2 Billion figure from your column. I know it is political kryptonite, but with all the 18-20 year-olds mobilizing on the gun issue and the large number of lame-duck legislators, it seems like the time for some brave soul to try it. Gotta sign off now so I can tilt at some windmills. Sigh.
Comment by SAP Friday, May 4, 18 @ 2:39 pm
Thanks Word, my perfidy alarm is going off like a WWII destroyer claxon.
Let me rephrase What would be said if the answer by Republicans was “But you certified the revenue estimate.”
I have a gut sense it has to do with
“We don’t have the money to pay for x”
Or
“Where are we going to find the money to pay x? (court ordered step increases etc)
Answer
We can’t “you certified the revenue estimate”
See where I’m going with this?
Rauner asked for it
Brady asked for it
Zigmund hasn’t asked for it ( that I read)
Maybe I need a tinfoil hat as Rich says but
I always try to imagine the worst
With this administration
Comment by Honeybear Friday, May 4, 18 @ 2:41 pm
The tax revenue from Marijuana is just one piece of the puzzle for certain. Outside tax revenue however is the job creation. Legalization in Colorado has created roughly 25,000 new jobs. Presumably and hopefully some of those jobs go to previously unemployed person’s broadening tax base.
With manufacturing jobs disappearing, legalizing Marijuana could jumpstart our economy
Comment by Generation X Friday, May 4, 18 @ 2:46 pm
==We have to start somewhere==
Agreed, but up to this point, the message has been that’s where it ends. CTBA basically doubled the tax rate on millionaires are we’re still woefully short.
Comment by City Zen Friday, May 4, 18 @ 2:54 pm
@JerryB: start here, and do some googling on the names of the consent decrees that they mention.
http://nprillinois.org/post/illinois-issues-what-are-consent-decrees#stream/0
Comment by Odysseus Friday, May 4, 18 @ 2:55 pm
woefully short
You don’t expect us to be all paid up in full in a year or two, do you?
Comment by Anonymous Friday, May 4, 18 @ 3:13 pm
Odysseus–Thanks for the link. As Rich recommended I did some googling for” much of Illinois state spending is governed by court orders or on autopilot” and found some if limited info. I think some of the “court ordered spending’ relates to the recent budget impasse and back up in unpaid bills but as others have commented what about in the future. As Rep Martwick mentioned there is short term and long term. Thx again
Comment by JerryB Friday, May 4, 18 @ 3:24 pm
Rauner wants to double state workers’ health insurance costs and remove health insurance and other subjects from collective bargaining (state and local), remove fair share fees and push thousands of workers out of unions, freely privatize, put state workers on a scammy merit pay system (up to 75% of workers may not get paid for exceptional performance), end layoff protections, freeze pay, etc. On top of this he and his supporters are going ballistic over paying a state income tax more in line with neighbors.
We could talk other solutions if not for Rauner’s plans, being governor. But we have to confront what he’s doing because he’s one-third of state government.
I agree marijuana legalization is not a fiscal panacea, always have, but we have to get to a better fiscal and economic place, and it would help.
Comment by Grandson of Man Friday, May 4, 18 @ 3:27 pm
==You don’t expect us to be all paid up in full in a year or two, do you?==
You’d be surprised how many people think just that.
Let’s say we implement CTBA’s plan. Who gets the extra $2B and what doesn’t? Actually, we already know the new education funding reform will consume that $2B and then some. So what do you tell universities/social services/etc starving for cash after you’ve already doubled the tax rate on millionaires?
Comment by City Zen Friday, May 4, 18 @ 3:34 pm
Yet Governor Junk says we need to cut the income tax rate even though he racked up so much debt that he needs a supplemental appropriation during this fiscal year.
Still there are math challenged people who believe Rauner when he spews such nonsense.
Comment by don the legend Friday, May 4, 18 @ 3:34 pm
I have argued for years to legislatively outlaw all employer “pick-ups” for pension payments but then require the employing entities to continue paying what they had been absorbing for 5 to -0 years. Statewide it will result in significantly more then one billion a year in additional pension contributions.
Comment by Sue Friday, May 4, 18 @ 4:01 pm
Sue - That makes no sense. The teachers net pay decreases while the cash-strapped school district saves no money.
Comment by City Zen Friday, May 4, 18 @ 4:09 pm
City Zen:
That’s her point. It adds to the pension payment. The teachers now pick up their portion but the school keeps paying what they had been paying. More money to the pension systems. I agree with you though that it doesn’t make any sense.
Comment by Demoralized Friday, May 4, 18 @ 4:19 pm