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* Gov. Pritzker’s proposed effective tax rate on a million dollars of annual income is 7.09 percent. Technically, it’s 7.0934746 percent, which is what we’re gonna use here. You can click here to see the math. State taxes on that million bucks would be $70,934.75, for an after-tax income of $929,065.25.
As we’ve already discussed today, at the $1,000,001 income level, the governor’s proposal would tax all income at the 7.95 percent rate. State taxes would be $79,500 for an after-tax income of $920,501. So, you’d be losing about 9 grand for that extra dollar of income. Significant.
The cutoff point above which tax avoidance wouldn’t make sense would be $1,009,305. State taxes would be $80,239.75 for an after-tax income of $929,065.25 - exactly what you would’ve paid if you made a million dollars.
Increase that income by just a dollar, to $1,009,306, and your state tax would be $80,239.83, with an after-tax income of $929,066.17 - 92 cents more than you’d have made with a million dollars in earnings. After that, the gravy gets thicker.
posted by Rich Miller
Friday, Mar 8, 19 @ 10:43 am
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Excellent analysis, Rich (and I imagine J.B.’s team did the same).
So they minimized avoidance incentive while setting a trap for opponents to frame the debate as a millionaire’s tax.
Nicely played, team J.B.
Comment by Robert the Bruce Friday, Mar 8, 19 @ 10:52 am
To the earlier post - Not a Billionaire’s point about the federal income tax loophole for “carried interests” is irrelevant to Illinois. The federal loophole is the taxation of income from carried interests at capital gains rates, rather than ordinary income rates. Illinois taxes all income at the same rate.
Comment by Whatever Friday, Mar 8, 19 @ 10:55 am
And the CPA’s are crying at lunch….
Comment by Fav Human Friday, Mar 8, 19 @ 10:56 am
==Is that going to be your battle cry? “Defeat the Millionaires Tax?”==
Yep. They’ve fallen right into that trap. As predicted.–
To be fair, “On to Little Big Horn and Victory” has been done already.
Comment by wordslinger Friday, Mar 8, 19 @ 10:56 am
It is definitely a nothingburger as I pointed out in comments yesterday.
Todd Maisch’s coinage of “millionaire’s tax” is very entertaining. He does realize that people voted on that very thing statewide in 2014, and in a year in which Rauner won, the millionaire’s tax got 63% on the question and 60% of all ballots cast — enough for approval had it been an amendment referendum instead of advisory.
Comment by Reality Check Friday, Mar 8, 19 @ 10:59 am
It’s clear there’s only one argument to make against it: taxing the wealthy at a higher rate than everyone else is bad, even though it’s already done on the federal level and nearly everywhere else in the world. If you want to die on that hill, and apparently Durkin does, go for it. You’re in a superminority by almost any available public polling, and you’re probably going to lose.
Comment by PJ Friday, Mar 8, 19 @ 10:59 am
I said federal loophole. It is good we do morph because there is all sort of income reclassification at the federal level.Carried interest is the most extreme
Comment by Not a Billionaire Friday, Mar 8, 19 @ 11:00 am
JB to the naysayers: ‘What else ya got?’
Comment by Cubs in '16 Friday, Mar 8, 19 @ 11:02 am
Can Durkin take his caucus to an ultraminority? We will see.
Rich, you should run the numbers again with the cost of all the accountants, and tax lawyers needed factored in. Lol.
Comment by Anonymous Friday, Mar 8, 19 @ 11:03 am
For most of the 1% crowd, boxing up the artwork would cost much more than $9,000.
Comment by Hamlet's Ghost Friday, Mar 8, 19 @ 11:11 am
Excellent example on the cost to the taxpayer of applying the 7.95% rate to the entire $1 million in taxable income. So a taxpayer with taxable income of just over $1 million would pay an extra $9k in Illinois tax. Hardly enough to warrant an extensive tax avoidance scheme. However, the taxpayer’s Illinois tax would increase to $79,500 from $49,500 under the current tax rate. Establishing a tax domicle in no tax state such as Florida would save the taxpayer $79,500 a year. That’s not insignificant.
Comment by Anonymous Friday, Mar 8, 19 @ 11:12 am
Haha, they have fallen right into that trap, huh?
Business people are smarter and more savvy than politicians. I wouldn’t count your “victories” quite yet. We’ll see how things play out.
Comment by Pick a Name Friday, Mar 8, 19 @ 11:12 am
The additional tax is 9/10ths of one percent of a millionaire’s total gross income. Most voters aren’t going to feel too sympathetic about that kind of an increase.
Comment by Southside Markie Friday, Mar 8, 19 @ 11:16 am
Anonymous at 1112 - then they had better give up the income they are earning in the state of illinois.
Comment by Anonymous Friday, Mar 8, 19 @ 11:16 am
@anonymous 11:12. New York deals with millionaire New Yorkers with fake Florida domiciles all the time. And the millionaire normally loses.
Comment by A Jack Friday, Mar 8, 19 @ 11:16 am
I realize that the pr campaign is geared toward the individual voters. But is anyone out there worried about the corporate rate increase? Of the $3.4 billion in increased revenue projections, i cant find how much of that is derived from the corporate increase. For better or worse, JB gets to own this. Assuming passage of course.
Comment by Blue Dog Dem Friday, Mar 8, 19 @ 11:18 am
Illinois will still be a tax friendly state for retirees and middle income earners.
Many states have a higher state income tax for incomes over one million: Vermont, New Jersey, New York, Iowa, Oregon, California, and Hawaii.
Washington D.C. has a top rate of 8.98%.
Comment by Anonymous Friday, Mar 8, 19 @ 11:19 am
=Business people are smarter and more savvy than politicians.=
You may be surprised to find out that many of these politicians are also business people.
Comment by Pundent Friday, Mar 8, 19 @ 11:19 am
==Establishing a tax domicle in no tax state such as Florida would save the taxpayer $79,500 a year.==
You think buying/renting in Florida costs less than 30k a year? If not, people who aren’t establishing “tax domiciles” under the current system have no more incentive to do so. The cost would outweigh the savings, even assuming tax avoidance is as easy as you seem to think (it’s not).
==I wouldn’t count your “victories” quite yet.==
Weird post. Are you cheering millionaire tax avoidance? Is that what gets you out of bed in the morning? Gov. Rauner’s buddies keeping enough in their pockets to buy one more piece of 17th century art?
Comment by PJ Friday, Mar 8, 19 @ 11:21 am
Kind of curious to see if they cut some of the current deductions / credits / etc..
If they cut the Supplies and Materials credit for teachers, $250, it won’t offset any tax relief that they would have received from being in the 97%.
Also, JB promised in campaigning that this tax plan would lower property taxes. There is a video of him. They haven’t been promising that lately.
Comment by CPA Friday, Mar 8, 19 @ 11:23 am
Holy cow, that’s some canny flippin’ math. Impressive drafting on JB’s part, impressive figuring on Rich’s part.
Comment by Arsenal Friday, Mar 8, 19 @ 11:26 am
==JB to the naysayers: ‘What else ya got?’==
The Marriage Tax
Comment by City Zen Friday, Mar 8, 19 @ 11:28 am
Also, I forgot to include Minnesota with a top state income rate of 9.85%.
Comment by Enviro Friday, Mar 8, 19 @ 11:30 am
This will keep all top sports free agents from coming here. No $8 million a year athlete is leaving $53k a month on the table to come to IL. That’s for sure.
Comment by Brian Friday, Mar 8, 19 @ 11:32 am
===The Marriage Tax ===
File separately.
Comment by Rich Miller Friday, Mar 8, 19 @ 11:33 am
===This will keep all top sports free agents from coming here. ===
Yankees, Mets, Dodgers, Giants… Lakers, NY Football Giants, Golden State Warriors…
They have no problem getting and keeping free agents.
Comment by Oswego Willy Friday, Mar 8, 19 @ 11:35 am
“$1 million in taxable income. So a taxpayer with taxable income of just over $1 million would pay an extra $9k in Illinois tax. Hardly enough to warrant an extensive tax avoidance scheme”
The $999,9999 example is a very specif example that hides the impact of the tax on super high earners. What is also clear is that the progressive Income tax proposed by JB would be a huge disincentive to all taxpayers that happen to have regular or sporadic high income. making all income over 1mill subject to the highest rate instead of tiering it will very much get the attention of folks who lead the Chicago Financial sector ( CME-CBOT, Morningstar and the like ). The hugely successful business folks who make tactical decision about money all the time are just going to take it ? Yeah right
Comment by Donnie Elgin Friday, Mar 8, 19 @ 11:36 am
===This will keep all top sports free agents from coming here. ===
Also, the leagues try to make it advantageous for clubs to keep their free agent players with the chance to offer a more lucrative deal without leaving the cities (like Chicago)
Comment by Oswego Willy Friday, Mar 8, 19 @ 11:38 am
The combination of the federal SALT limits and higher state rates does provide a high incentive for tax avoidance. The combined marginal rate is almost 45%. That is worth some effort. Maybe this is designed to make Illinois bonds more attractive.
Comment by Last Bull Moose Friday, Mar 8, 19 @ 11:40 am
===This will keep all top sports free agents from coming here. ===
Lastly, places like Hoboken NJ have become homes of 7-9 figure athletes working in NY/NJ
If there is a chance to win and guaranteed monies, athletes will go there.
Comment by Oswego Willy Friday, Mar 8, 19 @ 11:41 am
CNBC had a post about the lengths New York goes through to determine if you are faking the Florida residence. Rush whines about how they followed him for years. They check your Dental bills, cell phone records even whets in the refrigerator in New York.. Where the Dog is boarded is key. Take the dog to Florida if you go. If the Revenueers talk to him in the Illinois kennel, he’ll turn on you.
Comment by Anotherretiree Friday, Mar 8, 19 @ 11:42 am
===But is anyone out there worried about the corporate rate increase?===
At 12 percent, Iowa’s top corporate income tax rate is currently the highest in the nation. In 2021, federal deductibility will be repealed and the top rate reduced to 9.8 percent.
I believe that the Illinois Corporate Tax Rate is 7%. Iowa has a graduate corporate tax rate with, as mentioned above, a top rate higher than Illinois.
And wait for it….Iowa’s economy is strong. So any worry about a corporate tax increase is just politics.
Comment by Big Jer Friday, Mar 8, 19 @ 11:42 am
CPA, JB can’t cut property taxes, which are local, other than increasing the property tax credit as he has proposed. However, he can increase state contributions to education, such as the $350M extra in the budget, and expect action by local school boards to lower the levy, especially if pressured by voters.
Comment by Jibba Friday, Mar 8, 19 @ 11:45 am
Don’t really think the average taxpayer - even the average millionaire taxpayer - cares about how taxes will affect top sports free agents more than how taxes will affect them personally.
Comment by West Side the Best Side Friday, Mar 8, 19 @ 11:47 am
Definitely a nothingburger. We are talking about a very small percentage of taxpayers to begin with. And the ultra wealthy in that group make a lot more than $1 million dollars annually. These folks will pay the full 7.95% state tax as they should.
Comment by Illinois Resident Friday, Mar 8, 19 @ 11:47 am
BigJer. I thought i read that in addition to a .95% tax. The replacement tax went up totalling a new rate over 10%. Any word on revenue projections.
Comment by Blue Dog Dem Friday, Mar 8, 19 @ 11:48 am
The comments on sports free agents is hilarious. Seriously? Illinois policy should favor those folks and not the other 97% of our citizens?
Comment by Illinois Resident Friday, Mar 8, 19 @ 11:49 am
==This will keep all top sports free agents from coming here.==
If only it kept James Shields away.
Athletes are taxed where they play. Why do you think the Tiger Woods vs Phil Mickelson golf match was played in Nevada?
Comment by City Zen Friday, Mar 8, 19 @ 11:49 am
–This will keep all top sports free agents from coming here. –
Meh, Jerry and Pax are already doing a bang-up job on free-agent-prevention for the Sox and Bulls.
Seriously, dude. Run Machado’s tax in California and get back to us. Durant bailed on Oklahoma for the Bay as soon as he could.
These opponents….. they’re not sending their best.
Comment by wordslinger Friday, Mar 8, 19 @ 11:50 am
Jibba. Yes indeed.
Comment by Blue Dog Dem Friday, Mar 8, 19 @ 11:50 am
Has the “millionaire’s tax” question been on the ballot in the past?
Comment by Mama Friday, Mar 8, 19 @ 12:02 pm
===Any word on revenue projections==
Blue Dog- I have not seen any corporate tax revenue projections. But like a lot of people my current focus has been on the individual tax structure.
But IMO the corporate tax situation needs to be looked at as well. Not just the rates but the loopholes, credits, etc. Too many corporations use jobs as an extortion tool to get tax credits from states. Looking at you FoxConn and Amazon.
I am probably in the minority on Capitol Fax but I believe corporations have a civic duty to pay a fair tax. Here is a great quote by Elizabeth Warren about how I see corporate taxes:
https://www.goodreads.com/quotes/439207-there-is-nobody-in-this-country-who-got-rich-on
Comment by Big Jer Friday, Mar 8, 19 @ 12:03 pm
Rich, did you forget that you’d be paying taxes on that extra $9,305? The cliff affects everyone earning $1,000,001 equally. Everyone earning $1m1 and over pays that $9,305 because that $9,305 is the greater amount paid on the first $1M.
Comment by Anonymous Friday, Mar 8, 19 @ 12:03 pm
It turns out that when all is said and done, the millionaires will still be millionaires. Thank goodness.
Comment by Pot calling kettle Friday, Mar 8, 19 @ 12:05 pm
Most people make less than $80,000 a year. They will vote for the “millionaire’s tax”.
Comment by Mama Friday, Mar 8, 19 @ 12:09 pm
Do y’all, who are complaining about the millionaire’s tax”, make more than $250,000 a year?
Comment by M Friday, Mar 8, 19 @ 12:10 pm
Since millionaires are known for hiding their income, how does IL get them to pay the “millionaire’s tax”?
Comment by Mama Friday, Mar 8, 19 @ 12:13 pm
-This will keep all top sports free agents from coming here.-
Yep. The Bucs, Fins and Jags are the powerhouses of the NFL with their 0% state income tax rate.
Comment by Dance Band on the Titanic Friday, Mar 8, 19 @ 12:19 pm
The tax hit for crossing the threshold is an extra $8565. There are around 6.25 million individual returns (2016 data) filed in Illinois, so 0.03 percent amounts to about $16 million in extra tax revenue just from the threshold. It’s not trivial, but it’s not huge either. Seems like this is more about political positioning than revenue generation.
Comment by 61820 Friday, Mar 8, 19 @ 12:20 pm
===Why do you think the Tiger Woods vs Phil Mickelson golf match was played in Nevada?===
Vegas?
Comment by njt Friday, Mar 8, 19 @ 12:33 pm
wordslinger
==Run Machado’s tax in California and get back to us. Durant bailed on Oklahoma for the Bay as soon as he could.==
For the record I’m all for JB taxing millionaires, but for every example of a player signing in a high tax state there are the same who spurn it - most recently Bryce Harper and his $330,000,000.
Source regarding Harper: https://www.latimes.com/politics/la-pol-ca-skelton-income-tax-20190307-story.html
Comment by Peace Friday, Mar 8, 19 @ 12:36 pm
===but for every example of a player signing in a high tax state there are the same who spurn it===
Really? Every one? You have one example. Do better.
I’ll give you one more, though. Jon Gruden’s contract with the Raiders is reportedly structured to defer compensation until the team moves to Vegas. Think he’ll even make it that long? The dude is a total dud.
Comment by Rich Miller Friday, Mar 8, 19 @ 12:42 pm
=For the record I’m all for JB taxing millionaires, but for every example of a player signing in a high tax state there are the same who spurn it - most recently Bryce Harper and his $330,000,000.=
Which is why this is a ridiculous argument. If it had any merit the Dolphins would be perennial Super Bowl contenders and the Dodgers wouldn’t have the highest payroll.
Comment by Anonymous Friday, Mar 8, 19 @ 12:45 pm
Big Jer - You are not in the minority regarding corporate taxes. Agreed they should be higher and support the communities they do business in rather than constantly looking for tax subsidies and tax loopholes.
Comment by Illinois Resident Friday, Mar 8, 19 @ 12:56 pm
Pundent, care to guess how many dems in the house and senate are business people? And, I’m not talking about lawyers that say run property tax appeal shops.
BTW, Yadier Molina used to live in the metro east area, sold that property and now lives in Jupiter Florida.
Comment by Pick a Name Friday, Mar 8, 19 @ 12:59 pm
–BTW, Yadier Molina used to live in the metro east area, sold that property and now lives in Jupiter Florida.–
Shocking.
As we all recently learned, many find happy endings in Jupiter.
Comment by wordslinger Friday, Mar 8, 19 @ 1:02 pm
Nothingburger? Oh, please. Even at income levels away from the $1M mark tax avoidance is increased by a tax increase. People are mot inclined to invest in tax free instruments, make charitable contributions, cheat, move, change residences and many other things. Pritzker didn’t dynamically score any of this, which is inexcusable.
Comment by dri Friday, Mar 8, 19 @ 1:04 pm
The straws we grasp at are now top professional sports free agents. Wow.
Looking forward to the Pritzker Tax Cut.
Comment by Anonymous Friday, Mar 8, 19 @ 1:06 pm
==Jon Gruden’s contract with the Raiders==
That’s interesting. I wonder how many players would be better off deferring some of their late contract income until after retirement? I wonder where Bobby Bonilla lives?
==most recently Bryce Harper and his $330,000,000.==
Once again, athletes pay taxes where they play. But his endorsement money is based on his home residence, which is in tax-free Nevada.
Bryce will be just fine.
Comment by City Zen Friday, Mar 8, 19 @ 1:08 pm
Government for the dollar by the dollar.
Comment by Generic Drone Friday, Mar 8, 19 @ 1:14 pm
Here is the problem with this. The high estimate of the amount to be generated by the progressive tax is $3.4B. Yet, that doesn’t even pay the shortfall in paying the actuarially calculated contributions to the pension funds, which is over $4 billion per year. So yes, right now, the top rate is at 7.95. This, and likely the other rates, will still need to go up significantly in the future. And there was no real property tax relief with this, as was promised.
Comment by Smalls Friday, Mar 8, 19 @ 1:21 pm
Yadi owns a beautiful home near Ladue.
Comment by Blue Dog Dem Friday, Mar 8, 19 @ 1:22 pm
His official residence is Florida Blue Dog. When you make $20 mil a year you can afford a second home in beautiful Ladue.
Comment by Pick a Name Friday, Mar 8, 19 @ 1:39 pm
How about we move on from sports?
Comment by Rich Miller Friday, Mar 8, 19 @ 1:41 pm
==The additional tax is [only] 9/10ths of one percent of a millionaire’s total gross income….==
If you think there are Chicago millionaires who don’t ride CTA, you would be wrong. How do you think they hang on to their money? Most vulnerable to leaving are retired folks who no longer have as big a stake in staying.
Comment by Old Illini Friday, Mar 8, 19 @ 1:46 pm
The tax avoidance issue is not a problem for those at the 1 million dollar tipping point.
It is a MASSIVE issue for EVERY millionaire because they are all looking at a 60.6% tax increase. Somebody with a tax bill today of $250K will be eating an additional $151.5k in taxes annually due to a 60.6% rate increase.
These are the people that will now be highly motivated to either restructure how their income is reported or just move to another state. In the case of a residence move, not only will the State not generate the incremental $151.5k dialed into some future revenue stream, but the State will also lose the $250k that they’re receiving today.
Comment by Occam Friday, Mar 8, 19 @ 2:02 pm
“Most vulnerable to leaving are retired folks who no longer have as big a stake in staying.” And aren’t affected by this proposal anyway.
Comment by Skeptic Friday, Mar 8, 19 @ 2:05 pm
===Somebody with a tax bill today of $250K ===
Just for context’s sake, that person makes over $5 million a year.
Comment by Rich Miller Friday, Mar 8, 19 @ 2:08 pm
–Most vulnerable to leaving are retired folks who no longer have as big a stake in staying.–
For crying out loud, retirement income isn’t taxed.
Comment by wordslinger Friday, Mar 8, 19 @ 2:15 pm
===Somebody with a tax bill today of $250K ===
Just for context’s sake, that person makes over $5 million a year.–
If you’re making $5 million a year in your current situation, probably some incentive to stick with it.
Comment by wordslinger Friday, Mar 8, 19 @ 2:17 pm
==Pritzker didn’t dynamically score any of this, which is inexcusable.==
Dynamic scoring is what Brownback used to argue his tax cuts would work wonders for Kansas.
Comment by Nacho Friday, Mar 8, 19 @ 2:23 pm
–Pritzker didn’t dynamically score any of this, which is inexcusable.–
LOL, if he had, he would have said it will produce 8% GSP growth, a kajillion-billion in new revenue and a Cubs/White Sox World Series.
Because dynamic scoring is magic — the future can be whatever you want it to be.
Look how the Trump/Ryan/McConnell tax cuts have already reduced the annual federal deficit, just as predicted.
https://www.axios.com/federal-deficit-77-year-16fd4460-7ac0-4050-a42d-7d2b442533b0.html
Comment by wordslinger Friday, Mar 8, 19 @ 2:43 pm
Perhaps there is a more useful way to describe the change in taxing method above 1 million proposed here. The key is the difference between the $79,500 paid on income just over 1 million and $70,935 paid on exactly 1 million. That difference is $8,565.
The system is a graduated tax based on marginal income with brackets at $10,000, $100,000, $250,000, $500,000, and $1,000,000. In addition there is a surcharge of $8,565 on any taxpayer who earns more than $1,000,000.
The degree to which a taxpayer would avoid hitting $1,000,000 in income depends on how much they value the $8,565 they would save by earning less than $1,000,000. Presumably taxpayers who could earn far more than 1 million would not value that additional surcharge as much as someone earning an amount over, but close to 1 million.
Comment by muon Friday, Mar 8, 19 @ 2:47 pm
What wordslinger said. Rauner tried that dynamic scoring schtick, too. It was ridic.
Comment by Rich Miller Friday, Mar 8, 19 @ 2:50 pm
Are millionaires really going to employ any tax avoidance practices they aren’t currently already taking advantage of?
Comment by City Zen Friday, Mar 8, 19 @ 3:49 pm
CZ. As marginal rates go up, different investments start to help with taxes. When Reagan cut tax rates, I was caught on the wrong side of some investments. With high tax rates they ran st a tax loss but a positive after tax cash flow. With lower rates the after tax cash flow went negative.
Comment by Last Bull Moose Friday, Mar 8, 19 @ 4:01 pm
==For crying out loud, retirement income isn’t taxed.==
You are thinking of pensions. Multimillion dollar income doesn’t come from pensions but from 401(k)s, stock dividends, etc.
Comment by Old Illini Friday, Mar 8, 19 @ 4:12 pm
===You are thinking of pensions===
No. Retirement income is more than just pensions. Don’t be so ignorant.
Comment by Rich Miller Friday, Mar 8, 19 @ 4:18 pm
So I think I found the answer. The last slide in the presentation shows the MARGINAL rate is 7.95% for income over $1 million. So there is no “snap back” effect as described in my previous post. So that additional $1 of income above $1,000,000 only costs you 8 cents of tax, and not $8,565 of tax. “Marginal rate” means rate on additional or marginal income and not tax on all of your other income.
Comment by Rarely Posts Friday, Mar 8, 19 @ 4:27 pm
Somehow I lost my previous post. My point was that no tax system in the country would impose $8,565 (79500 - 70935) of tax on an additional $1 of income. I don’t think that’s what the Pritzker plan means although the presentation isn’t very clear. That would be a tax rate of 856,500%
Comment by Rarely Posts Friday, Mar 8, 19 @ 4:30 pm