Illinois finally passed a budget. Some may consider this a story of triumph and political cooperation, but the fact remains: Illinois is grossly in debt, and this gorilla in the room must be tackled sometime soon. Considering the new tax hike, expect the call for a progressive income tax to reenter Illinois’ legislative arena soon.
Progressive income taxes are popular political proposals because they tax a person in a higher-income bracket at a higher rate than someone in a lower-income bracket, which contrasts with Illinois’ current flat-rate income tax system, which will now tax 4.95 percent of all earned income. On its face, this seems fair—the rich can afford to give up more of their income, can they not?
But who is “rich?” Taxpayers never seem to ask this question.
Americans are notoriously terrible estimators of their socioeconomic status. Survey results will vary somewhat, but a disproportionate majority of Americans consider themselves “middle-class.” Almost nobody considers himself or herself rich. So, when a politician promises to fund something by taxing the rich more, most taxpayers tacitly assume they will receive some benefit without paying any of the cost. Who wouldn’t support such a deal?
If taxpayers are concerned with their tax bill, they should instead ask how much this new progressive tax would ask of them. After all, if Illinoisans had to pay the income taxes of their neighbors, the middle class would lose more money through taxes than they do under the current flat rate. A few years ago, many Illinoisans were duped by the pretentiously named “Illinois Fair Tax” movement. Despite the marketing, the proposal was effectively a tax hike an all but the lowest of the low-income taxpayers.
That’s the faulty messaging with a progressive income tax, but the marketing wars do not stop there. Much misinformation about a flat income tax rate also circulates the political sphere.
A flat income tax rate means you owe the same percentage of your income in taxes regardless of how much income you make, aside from any credits or incentives that may exist elsewhere in legislation. The Chicago Sun-Times editorial board therefore wrote erroneously when they claimed, “The bigger the disparity [between highest and lowest incomes], the more lower-income people pay in taxes as a percentage of income than their wealthier neighbors.” On the July 6, 2017, television broadcast of the CBS Chicago morning news, Mike Puccinelli falsely protested that people pay the same amount of taxes whether they make $5,000 or $5 million in income.
Rates and brackets only tell part of the story of a progressive income tax’s impact on a state’s economy. By and large, those with higher incomes are more mobile than other state residents. One reason for this trait is that, in today’s economy, higher incomes are often earned in knowledge-based or information-centric occupations, which are relatively less location-dependent. Illinois’ mass out-migration is well documented, but taxpayers should not be surprised that college students and graduates are among the quickest to leave. If Illinois implements a progressive income tax, much of the upper-income tax base will simply seek greener pastures, leaving the tax burden on the middle-class.
Finally, taxpayers should recognize that a progressive income tax is a tax hike. Illinois already weighs its citizens down the highest overall tax burden in the country, and the $5 billion income tax hike from the new budget puts more pressure on its citizens. A progressive tax proposal would further demonstrate that politicians are not putting residents’ needs first.
Embracing a progressive income tax is a brilliant marketing move for many politicians. It is a cunning way to promote a tax increase without most of your taxpayers knowing. Next time a progressive tax rises from its ashes, Illinoisans must recognize it for the marketing ploy it is. Instead, taxpayers must discourage their lawmakers from further draining their citizens and encourage them to enact structural spending reforms to solve long-term fiscal issues.