*This piece has been updated to include Office of Management and Budget projections for 2021-2025, released in October of 2019. The original version only included 2019 OMB budget projections released in October of 2018. The overall impact of the update is not material to the findings of the piece.
By: Ted Dabrowski and John Klingner
Listen to Gov. J.B. Pritzker and new Senate President Don Harmon in recent TV interviews and they’ll leave you thinking their progressive tax proposal includes real property tax relief for Illinoisans. Harmon pitches it this way: “The fair income tax would allow us to generate that income at the statewide level and push down the pressure on property taxes.”
That’s simply not true. There’s no money in their progressive tax plan for property tax relief. The math says so.
Their proposed tax structure will reportedly bring in just $3.6 billion in new revenue, an amount that would be swallowed immediately by the state’s projected budget deficits, unpaid bills and pension contributions, leaving virtually nothing for property tax relief or any other promises. We break out the numbers down below.
The only way tax Pritzker and Harmon can deliver real property tax cuts – in the absence of the spending and pension reforms Illinois actually needs – is to massively hike income taxes by billions more. That means they’d have to break their current promise of tax cuts for working and middle income Illinoisans.
Here’s what they said, and more importantly, what they didn’t.
What they’ve said
Listen to Pritzker’s interview on CBS 2 Chicago when he’s asked:
“Is property tax reform something you can promise will go hand-in-hand with the progressive tax?”
He said: “Remember what you’re paying for when you pay your property taxes… If we can help with that, then we are alleviating the burden of property taxes. The examples are paying for education.”
Sen. Don Harmon was even more explicit during his recent interview on Chicago Tonight.
When asked if the progressive tax was needed before property tax reform could be tackled, he said:
“It’s a critical precursor [to property tax reform]…The property taxes in this state are too high because we rely almost exclusively on the property tax to fund our schools. If the state lived up to its obligation to provide the primary source of funding for kindergarten through high school we’d be able to push the property tax burden down….The fair income tax would allow us to generate that income at the statewide level and push down the pressure on property taxes.”
Neither man is being honest. The progressive tax plan, as proposed, can’t grant a tax cut to 97 percent of Illinoisans and provide property tax relief at the same time. Here’s why:
Fact #1. The progressive tax structure raises $3.6 billion in revenue.
Pritzker and Harmon claim the progressive tax structure passed by the legislature – the one that would supposedly go into effect if the progressive tax referendum in November passes – would raise $3.6 billion in additional revenues a year.
It’s the rate structure shown below that pro-tax politicians are using to make their promise that 97 percent of Illinoisans will get, at the most, a $65 income tax cut. However, if lawmakers want to raise billions more from a progressive tax structure to offer real property tax relief, the rates on middle and working class Illinoisans will have to jump.
Fact #2. Pritzker has said that the tax increase will be dedicated to the state’s budget deficit. Recent budget office projections show deficits of $2-3 billion-plus over the next few years.
Pritzker has gone on the record saying: “I’m committed to stabilizing this budget, to making sure that we get rid of the deficits that exist for the state of Illinois,” and that “the fair tax, let’s remember, is all about putting the state on firm fiscal footing for the future to make sure we can balance the budgets in the future.”
Rauner projected a $3.4 billion shortfall in 2021 and $3 billion-plus budget deficits for several years after that. Pritzker’s projected numbers are a bit better, but still show budget deficits growing to $3 billion in later years. Here are the numbers from both:
Based on those numbers, the money that will be raised from the progressive tax, if it passes, will be largely consumed by the state’s structural budget deficit. There will be almost nothing left over for anything else. Certainly nothing for property tax relief.
Not to mention that the state still has more than $7.1 billion in unpaid bills as of January 24, 2020. And that the state is still shorting its pension plans by several billion dollars every year.
Billion more in taxes
Harmon and Pritzker shouldn’t imply property tax relief unless they’re prepared to break their promise of tax cuts for 97 percent of all Illinoisans.
Take Harmon’s goal of making the state the primary provider of education funding, for example. That means the state would be responsible for funding at least 50 percent of all K-12 education spending in Illinois going forward, requiring billions more annually in state spending.
If Harmon had been honest in his interview, he would have said: ”To make the state the primary funder of education (more than 50 percent of all education spending), we’ll have to raise our progressive tax proposal by another $5 to $7 billion a year. And that means we’ll have to enact a significant income tax hike on middle- and working-income residents.”
And if either politician were honest about the full cost of the state’s deficit, they’d say: “Paying down our unpaid bills and contributing more to our core pension problems would mean another $3 to $5 billion on top of that. In total – without pension or spending reforms – we need some $12 to $15 billion in total tax hikes, not the $3.6 billion we’ve proposed.”
Wirepoints ran similar numbers last year using available 2015 tax data and found that the income tax rate on middle incomes would have to jump for the progressive tax to raise an expected $11 billion in new revenues.
Rates would have to jump to 8.5 percent on middle incomes starting at just $50,000. And rates would rise to above 11 percent for million-dollar incomes.
That’s a far cry from providing relief for Illinoisans.
And it’s even worse that Pritzker and others are overselling the tax the way they are. Making Illinoisans believe something that’s just not true is an all too common tactic used by Illinois politicians on both sides of the aisle. It’s part of the reason why Illinois is in such a mess.
Read more about how the proposed progressive income tax will fail Illinois: