By: Mark Glennon*
The Illinois Senate Wednesday passed a package of tax bills tweaking Governor Pritzker’s graduated tax proposal. They already bumped the rates up a bit from Pritzker’s proposal, but what’s more notable is the shamelessness of the gimmickry they added.
For starters, they must have figured that, since they were already playing the $.95 pricing psychology, they might as well make it $.99. They raised the top income tax rate to 7.99% from Pritzker’s 7.95%. For single filers, the new maximum rate rate would kick in at $750,000 and apply to all income. That’s $250,000 lower than under Prtizker’s plan. For joint filers, that top rate would kick in at $1 million, as in the governor’s plan, and again covers all income.
The corporate tax rate would be raised to 7.99%, a bit higher than Pritzker’s 7.95%. The current rate is 7% but corporations also pay a replacement tax that makes the top corporate rate 10.49% under the Senate plan.
The big sweetener trumpeted by Senate proponents, which they added, is a property tax freeze. Property taxes, they know, are what make Illinoisans most livid.
But the freeze is phony:
• First, the freeze applies only to school property taxes. While schools represent the bulk of those bills, left out are all the other items you see on your property tax bill, including those for your city or town, park district, county and more.
• Second, it’s entirely contingent on the state living up to funding promises under the new school funding formula and for “mandated categoricals.” But that will never happen because the cost would be impossibly huge. The funding formula was designed that way so that schools could perpetually claim underfunding. Meeting this condition required to trigger the freeze would take an additional $650 million each year for ten years.The Center for Tax and Budget Accountability, which was given a central role drafting the new formula and is very friendly towards bill supporters, says we are already over $7 billion short of full funding under that formula. In other words, the condition needed to trigger the freeze almost certainly wouldn’t be met, and if it did it would be at the mercy of each year’s budget.
• Third, the freeze would still allow for increases to pay pensions and debt service.
The Senate legislation, like Pritzker’s proposal, includes repeal of the estate tax. But that’s long overdue and nobody in either party could seriously defend keeping it. Estate taxes at the state level are irrational, driving out the wealthy who can flee, leaving only large farmers and others with real ties to the state to pay it. Revenue is minimal — less than one percent of the budget — about $300 million.
But that didn’t stop the likes of Senate President John Cullerton from trying to spin things his way. He reportedly laughed out loud at Republicans who all voted against the repeal of the estate tax. In truth, those opponents were voting against the whole package, all of which is contingent on the other pieces. Naturally, a voice in the press friendly to Cullerton, Politico, went along with Cullerton’s spin, calling it “role reversal.”
The primary argument made by graduated income tax supporters remains fairness – making the rich pay more and giving the rest a break. However, the tax relief for the middle class is paltry. For every $1 of tax relief that will be spread among the bottom 97%, $21 of tax increase will be paid by the top 3%. Those are Pritzker’s own numbers.
So, why not just call this for what it really is – a tax hike on the wealthy? Many Illinoisans may be fine with that.
But we think most Illinoisans will figure this out for themselves, and it won’t take long. They will see this as yet another tax increase with no reforms. They will see quickly that it accomplished little, leaving our fiscal crisis out of control, and they will know they are in line for the next tax hit. They will watch this tax increase backfire in the long run by driving more taxpayers off.
Only a long list of drastic reforms like we’ve long advocated here will restore the confidence essential to stabilizing Illinois.
*Mark Glennon is Founder of Wirepoints.