Only mature readers should proceed beyond this point because you’re about to see the T-word. Taxes. Many think it the most obscene term in the language.
My neighbors in Illinois are going to hear the word a lot in this gubernatorial election year, given that the state debt is still astronomical, the income tax was just increased, property tax rates are hair-curling and the infrastructure is crumbling.
Maybe that’s why the state has been experiencing a net loss, by recent trends, of almost four residents an hour. That leaves nearly 34,000 fewer people a year to help bear the financial pain.
So what’s new? How about the impending debate over a progressive income tax? It appears that many Democrats want one, and many Republicans don’t. You may need a little help to understand the issue.
Illinois has a “flat” state personal income tax, currently 4.95 percent. After deductions or other adjustments, you pay 4.95 percent of your income — whether you earned $10,000 or $10 million.
So if your adjusted income was $160,000, the tax in Illinois would be 4.95 percent of that, or $7,920. Hold that thought.
Hypothetically, let’s say Illinois passed a progressive, or tiered, tax with a rate of 4.95 percent on the first $150,000, and 6 percent on income above that. You would pay 4.95 percent on $150,000 ($7,425) and 6 percent on the remaining $10,000 ($600) for a total tax bill of $8,025.
Some folks run off the rails at this point, mistakenly thinking that the 6 percent “bracket” would apply to the whole $160,000, for a tax bill of $9,600. Nobody is proposing that.
The federal income tax uses seven brackets for individuals. Every state adjoining Illinois has some kind of progressive tax structure except Indiana. (It has a flat state rate of 3.3 percent. But unlike in Illinois, Hoosier counties are allowed to tax income there too. With an average county rate reported at 1.5 percent, the 4.8 percent total rate comes pretty close to Illinois.)
Sometimes you’ll hear people complain that they will earn less money because a pay raise pushed them into a higher tax bracket. It doesn’t really work that way. The higher rate applies only to the income that goes above the bracket’s threshold. They never end up with less.
All but one of the Democrats running for Illinois governor have advocated for some kind of progressive tax. Most lack specifics so far. The idea presumably would be to set high brackets to reap extra taxes from the relatively wealthy, without affecting the middle class.
That concept contrasts with Missouri, which has 11 brackets, all aimed at extremely low income levels. There is no distinction between the middle class and the rich, taxing all income over $9,001 at the top rate of 6 percent.
The fundamental question in Illinois is whether it is fair to expect people to pay greater percentages of income tax for their affluence when they arguably put less burden on government services than the poor.
It already has been answered in the federal tax system and those of the 34 states that have progressive income taxes. There appears to be no momentum to abandon those. Even the recent big federal tax overhaul — a gift to the rich that was camouflaged behind shorter-term benefits for ordinary people — adjusted the rates but not the use of brackets.
This year’s real Illinois political argument — heck, every year’s Illinois political argument — will be over state spending, property tax relief and debt retirement.
Republicans, like Gov. Bruce Rauner, argue that high Illinois taxes are strangling commerce and feeding the exodus. They argue that a better business climate will deliver more revenue.
Democrats are more committed to preserving social services and generally less afraid of taxation. You can blame them for a long-term under-funding of the state’s pensions and services, in a reckless quest to eat their cake and have it too. But it’s no comfort that, on a national scale anyway, the GOP has been prioritizing private profits over compassion.
Neither Rauner nor his re-election opponent in the March 20 primary, state Rep. Jeanne Ives, wants a progressive income tax. Both would prefer a general tax reduction.
Among Democrats running for governor, J.B. Pritzker, state Sen. Daniel Biss, Chris Kennedy, Tio Hardiman and Bob Daiber have said they want some kind of bracketing; Dr. Robert Marshal does not. (By the way, I listed the Democrats in finishing order from last month’s early “We Ask America Poll.”)
Passing a progressive income tax would pose a particular challenge, since it would require amending the Illinois Constitution. That takes at least three-fifths approval in each the House and Senate, and public support at the polls of either three-fifths of those voting on the issue or a majority of all votes cast.
For now, the Democrats’ legislative majority has enough votes in the Senate, by one, but is four short in the House.