From the Effingham Daily News, reprinted with permission of author Jim Nowlan:
Jim NOwlan, guest columnist: The Illinois Tax Man cometh; how should we greet him?
A number of readers (actually two) have requested a column about Gov. J.B. Pritzker’s tax initiatives.
I have rattled on about this in the past, yet the topic is important to the future of Illinois, so here goes again, at least for the benefit of the two readers with interest.
There are two elements to this.
Less than a year from now, we will be asked to vote for or against a constitutional amendment to authorize a progressive income tax (higher rates for higher incomes).
If that passes muster, a statute enacted this past spring will automatically go into effect, increasing tax rates on incomes above $250,000 and even much higher for incomes above $5 million.
The new tax revenue is expected to raise more than $3 billion per year.
Unfortunately, the State needs the money.
There simply is not enough waste and corruption to be excised to fill the gap between present spending and revenue.
Most of our state budget goes for state pensions, which the Illinois high court has said can’t be touched; Medicaid (health care for more than 3 million low-income and most nursing home residents), which nobody has figured out how to constrain, and education, which few want to cut.
The remaining state agencies are puny by comparison (go to jimnowlan.com for in-depth budget columns).
Indeed, the Pritzker tax increases alone won’t be enough to close the budget gap and pay off old bills.
Illinois state and local taxes (property a local levy) are already, overall, significantly higher than the national average.
Each Illinoisan has his own gripe about taxes.
For some, it’s the property taxes, which are among the highest in the nation.
For others, it’s high sales taxes in some jurisdictions on big ticket purchases like new autos. For employers, it’s our high workers’ compensation costs (a tax in the eyes of business).
Rich (some would say successful) people in our state are already chafing under the state’s hefty inheritance tax, which most states abolished a few years ago. [Illinois also abolished it by a bill sponsored by State Rep. Penny Pullen. Democrats re-imposed in after they gained control of all the power in Springfield.]
Further, Congress recently limited deductions from our federal income tax liability for state and local taxes paid. This increases federal income taxes for many high-income Illinoisans.
So, should the Pritzker tax increases be approved?
Proponents say, since the money is needed, it is fair to impose the increases on the rich and not on the rest.
Opponents say the increases, on top of other burdens noted above, would cause successful people to think about living six months a year in Florida to avoid all these burdens.
They say it would also drive our perceived business climate even further toward the bottom among the states.
By the way, at present, though not opposed to the concept of a progressive rate structure, I am opposed to the specific tax increase — already enacted — and so plan therefore to vote against the amendment.
Will the increases be enacted in November 2020?
Putting on my political analyst hat, I say it will be close (how’s that for hedging my bets?).
Democrats will tend to favor, as a way of reducing income inequality.
“Main Street” and Rotary Club Republicans will generally oppose, asking why should we punish success, which many of them aspire to achieve?
Many Trump Republicans, a somewhat different breed from the Rotarian type, feel “the system” and the elites have screwed them over, so they may support the increases as a way of sticking it to the rich.
The constitutional amendment will require a vote of 60 percent of those voting on the issue for it to be adopted.
A recent poll I saw reports 68 percent favor the tax increases on high-income earners.
However, based on election history, many voters, especially those I think might favor the proposal, will fail to go way down the long ballot to vote on constitutional amendments.
Thus, they would not be a part of those “voting on the issue” of the amendment.
On the other hand, those motivated to vote against the issue in their self-interest are more likely to vote against the amendment.
So, it’ll be close, I aver.
What happens if the constitutional amendment fails?
Fiscal chaos.
Since there won’t be enough revenue to pay basic bills, bond houses will declare Illinois state and local debt to be “junk.”
This will make the state and its 7,000 governments, which often need debt to fund long-term projects, a pariah among the states.
That is why “No” voters like me have a responsibility to be ready with Plan B.
In our book “Fixing Illinois” (U. of I. Press, 2014), co-author Tom Johnson and I call instead for broadening the sales tax to remove scores of exemptions (semen for artificial insemination of livestock, for example, is among many) and extend the tax to services, as Iowa does.
And also tax some retirement income, as most states that have an income tax do.
Pundits say the political barriers to Nowlan-Johnson are insuperable, because taxes would increase on all of us, not just the rich, and voters wouldn’t stand for it.
So, as I say, chaos.
It’s called a conundrum, that is, a really difficult and intricate problem.
= = = = =
For many years, Jim Nowlan was a senior fellow and political science professor at the University of Illinois in Urbana-Champaign. He has worked for three unindicted governors and published a weekly newspaper in central Illinois.
He also was elected State Representative, ran as Governor Richard B. Ogilvie’s running mate in 1972. served as campaign manager of statewide races and been Director of various state government departments.
There are other, perhaps better tax friendly states:
https://smartasset.com/taxes/states-with-no-income-tax
Let’s face the fact the Illinois will never cut spending.
BREAKING NEWS: Conservative Republican former elected official takes the conservative Republican position on tax policy. SHOCKING!
Also, this is cute: “Rich (some would say successful) people in our state are already chafing under the state’s hefty inheritance tax.”
Awww… how very sad we should feel about this tiny number of families that have more than $4 million in things to hand down to their kids when they die.
The idea that rich people have it hard in this state is just laughable.
We have one of the most regressive overall tax structures in the country.
I know one who moved to Florida because of the reimposition of the inheritance tax.
Jim Nowlan is socially liberal, fiscally conservative and not noted for extreme positions.
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Taxing the rich will not generate enough revenue to solve the fiscal problems in the state of Illinois, and a plan has not been presented to solve the fiscal problems in Illinois, so if the progressive income tax passes, what’s next.
Add on top of is the refusal to renegotiate the legislative pension benefit hikes while pensions were underfunded, the corruption, the unwillingness to balance the State budget since 2001, a dysfunctional hard to follow legislative process with power concentrated at the top that can change bills at the blink of an eye and rush them through the approval process, and we have a fiscal mess.
Illinois has taken the beg for forgiveness route, meaning, create massive debt, presumably because it’s easier to get elected if you play Santa Claus, then ask for the money.
It turns out Santa Claus was using a credit card and not paying in cash.
For decades politicians minimized that debt and the fiscal problems.
The numbskulls in Springfield are just trying to delay the inevitable for a little bit longer.
The pension funding problem has passed the point of no return and will never get fixed.
There is going to be some form of default on the pensions, the questions are when will it happen and who will take the biggest haircuts.
**I know one who moved to Florida because of the reimposition of the inheritance tax.**
Anecdotes are always a great way to make policy. **eyeroll**
**Taxing the rich will not generate enough revenue to solve the fiscal problems in the state of Illinois, and a plan has not been presented to solve the fiscal problems in Illinois, so if the progressive income tax passes, what’s next.**
The only way to even attempt to solve the fiscal problems is more revenue.
This is undeniable, and to pretend otherwise is either ignorant or intentionally misleading.
The Fair Tax will go a long towards fiscal stability.
And it will only align our state’s income tax structure with almost every other state in the country.
This is the funniest line in the whole story;
“A number of readers (actually two)”
Jim Nowlan does have a good sense of humor.
Calling it a “fair tax” is very funny.
How long will it take till they increase the lower tax brackets?
2 weeks?
Of note, as of January 1 they will stick it up the asses of people buying new vehicles by limiting the sales tax deduction to $10k on a trade in.
https://www.illinoispolicy.org/illinois-house-bills-would-reverse-pritzkers-car-trade-in-tax/
Illinois is the worst State of 50 fiscally. A previous poster said, “The only way to even attempt to solve the fiscal problems is more revenue”. This is the usual answer we have heard for years, decades, from liberals and Democrats.
No. The only way to even attempt to solve fiscal problems is to CUT SPENDING. Spending includes huge outlandish pension amounts for current and future government worker retirees and inefficient government programs and departments.
Illinois legislators are proven liars as it pertains to fixing anything to do with fiscal policy.
They have, in every possible instance, taken new money and misappropriated(if we think new money should be used to fix schools, roads, pension crisis… ad nauseum….) this new money to new programs or hiked expenses.
New revenue can help.
No one would deny this.
Even the debt ratings agencies have asked Illinois to do this.
AFTER addressing massive spending issues.
Step one: Prove this State isn’t so ignorant it just continually thinks the gravy train of ever higher debt loads won’t end by tightening up the fiscal belt.
Step two: Prove the new graduated tax won’t result in an exodus of further capital from the State(money is portable and goes where it is treated the best when it is in the hands of those with means… the very people targeted by this tax).
Step three: Beg the population of Illinois for ever more of their fruits from their hard work.
Begging is not a first step ever.
Believing the money in the State today will be here tomorrow is naive at best, dishonest for sure and ignorant policy foundations.
Those with money will allow their money to leave the State.
Businesses making profit will stay and raise prices to protect their bottom line(regressive tax on the middle class and working poor).
Marginal businesses will watch their costs spiral ever higher while their customer base evaporates.
Today’s Democrats are the least educated most entitled group this country has ever had.
Illinois Republicans are the most corrupt self centered group of fools in the Union.
The Citizen of Illinois is just about done.
The Slaves of corruption and The State will be all who can afford to remain.
Better to discuss conservative fiscal policies now than continue the inevitable slide into insolvency.
It’s just a way to redistribute wealth from generally white and Asian productive people to generally non-productive non-white/Asian people.
Oh good Lord Rice.
Whomever you are you win the prize as second most ignorant person on the blog to the cat abuser.
No.
Regressive Tax means economically hurting the middle class down through lower class with idiotic policy.
This does NOT mean hurting whites in favor of black folks.
Idiot.
Priest needs to wake up.
White Christians (especially men) are definitely under attack.
Time to turn in your frock.
You are a goofball of a major magnitude.
What does your statement, any part of it, have to do with taxation, fiscal policy or the future financial health of the State Cindy?
This thread isn’t about Christianity, gender or race.
Are you feeling well tonight?
Did you read another thread and think you were commenting there?
Your Marine husband garners you forbearance.
Your age garners you mild amusement at your disphasia.
Try to connect to the subject at hand rather than commenting on a subject no one brought up.
You can do it.
You were a librarian.
There is no plan to sustainably address the debt.
Only a plan to win the next election.
The Illinois state politician mantra in place at least since Jim Thompson and probably well before that.
Let’s see how long the Illinois Pension Ponzi scheme will last.
That would be the Ponzi scheme pension promise in the Illinois State Constitution.
Poor Bernie Madoff, his Ponzi scheme was not guaranteed in the Illinois State constitution.
Where can the state grab revenue next?
To be revealed in the next election cycle.
There are several pieces of legislation regarding the proposed state income tax hike.
1. Constitutional Amendment to change from a flat state income tax, to allow for an adjustable state income tax.
2. The adjustable rates if the amendment were to pass.
The referendum is set for Tuesday November 3, 2020.
Initially rate hikes apply to annual income of $250,000 and higher.
However, hiking income brackets lower than $250,000 would simply requiring the State House and Senate to pass a bill to be signed by the Governor (or in the case of a Governor veto, having the Senate and House override the veto).
Hiking some or all brackets lower than $250,000 at some point in the next few years or decade is very likely.
The current scheme was estimated to generate $3B annually..
That’s not enough combined with all other current revenue sources to address the massive state debt for pensions, retiree healthcare, bonds, and past due bills, and plans for future increased spending for healthcare and education, just to name a few.
The question is not if, but when.
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Senate Joint Resolution Constitutional Amendment 1 (SJRCA 1) in the 101st Illinois General Assembly, which passed on May 27, 2019:
RESOLVED, BY THE SENATE OF THE ONE HUNDRED FIRST GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, THE HOUSE OF REPRESENTATIVES CONCURRING HEREIN, that there shall be submitted to the electors of the State for adoption or rejection at the general election next occurring at least 6 months after the adoption of this resolution a proposition to amend Section 3 of Article IX of the Illinois Constitution as follows:
Article X Revenue
(ILCON Art. IX, Sec. 3)
SECTION 3. LIMITATIONS ON INCOME TAXATION
(a) The General Assembly shall provide by law for the rate or rates of any tax on or measured by income imposed by the State.
In any such tax imposed upon corporations the highest rate shall not exceed the highest rate imposed on individuals by more than a ratio of 8 to 5.
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Senate Bill 0687 (SB 0687) was signed into law on as Public Act 101-0008 (PA 101-0008) on June 5, 2019.
SB 687 > PA 101-8
This contains the adjustable tax rates if the a constitutional amendment passes.
They are likely to be the initial adjustable tax rates.
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As is typically the case in Illinois, there are many details to this legislation, and additional related legislation applies.
For more details reference the following document.
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Deloitte
External Multistate Tax Alert
July 3, 2019
Illinois Legislature Adopts Substantial Changes to Tax Laws
https://www2.deloitte.com/us/en/pages/tax/articles/illinois-legislature-adopts-substantial-changes-to-tax-laws.html
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The current Illinois State Income Tax Rate is 4.95%.
If the November 3, 2020 referendum to pass, those with annual income $100,000 or less would see a small decrease.
The maximum decreases would be:
$0 – $10,000 bracket: $20 maximum for annual state income of $10,000 ($10,000 x .002).
$10,001 – $100,000 bracket: $50 maximum for annual state income of $100,000 ($100,000 x .0005).
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So depending on ones tax bracket, the most one could save under the Pritzker tax cut would be $20 or $50.
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How about the middle of each bracket?
Should be obvious but:
$5,000 annual income x .002 = $10, which is a $1 cut for every $500 earned.
$50,000 annual income x .0005 = $25, which is a $1 cut for every $2,000 earned.
etc.
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Why didn’t the Democrats, who control the House, Senate, and Governors office, propose bigger tax cuts for the poor and working class?
Because the state has too much debt as the result of not properly managing its finances and not balancing its budget since 2001.
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$0 – $10,000 bracket: 2/1,000 percent tax cut (that’s two one thousandths of a percent).
$10,001 – $100,000 bracket: 5/10,000 percent tax cut (that’s five ten thousandths of a percent).
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$0 – $10,000 bracket: cuts rate from 4.95% to 4.75% (.0495 – .0475 = .0020 cut).
$10,001 – $100,000 bracket: cuts rate from 4.95% to 4.90% (.0495 – .0490 = .0005 cut).
$100,001 – $250,000 bracket: rate remains at 4.95%.
Above $250,000 the brackets vary based on whether one files a single tax return, or a joint tax return.
Illinois Policy Institute
Progressive income tax study guide
December 10, 2019
http://www.illinoispolicy.org/progressive-income-tax-study-guide
Taxpayer Education Foundation
The Truth About Wealth Inequality
December 10, 2019
“Federal Reserve Board data found that the top 1 percent wealth share increased slightly between 2013 and 2016, but the wealth of the median household jumped 16 percent over that period.”
http://www.taxpayereducation.org/2019/12/the-truth-about-wealth-inequality
Cato Institute
Exploring Wealth Inequality
Policy Analysis No. 881
By Chris Edwards and Ryan Bourne
November 5, 2019
http://www.cato.org/publications/policy-analysis/exploring-wealth-inequality