By: Ted Dabrowski and John Klingner
Illinoisans have voted down the progressive tax amendment 55 percent to 45 percent, soundly rejecting lawmakers’ calls for higher taxes. The amendment was set to change Illinois’ flat income tax structure to a progressive one and raise a projected $3.1 billion. Under the proposed law, Illinoisans’ highest marginal rate would have reached 7.99 percent, a 60 percent increase compared to Illinois’ current flat rate of 4.95 percent.
The failure of Illinois’ progressive tax amendment is stunning when you consider all the money, the power and the strategy that was behind it. It’s hard to dream up a more favorable setup for the amendment’s passage.
Gov. J.B. Pritzker, one of the wealthiest men in Illinois, made the progressive tax his signature proposal for fixing the state. He poured an enormous amount of political capital and spent $58 million of his own money to promote the amendment. The governor’s campaign was also assisted by the state’s powerful public sector apparatus – arguably one of the nation’s strongest – to help spread pro-tax messaging across the state. The tax had an enormous political push.
The tax itself was structured to maximize a “rich vs. poor” mentality, pitting 97% of Illinois taxpayers against a minority of just 3%. Only taxpayers with incomes above $250,000 faced higher tax rates, while all other Illinoisans were offered an incentive to tax the wealthy in the form of a small tax cut. The incentives were overwhelming.
Even the wording on the ballot was manipulative, starting with the first line. “The proposed amendment grants the State authority to impose higher income tax rates on higher income levels,” was misleading, at best. There was nothing in the amendment to stop lawmakers from imposing higher rates on everybody. The rest of the ballot language was just as bad.
Illinoisans’ fears of higher taxes were also exploited. The Pritzker administration warned a 20 percent income tax hike was in the offing if voters rejected his amendment. Threats of tax hikes on everyone were meant to ensure that the 97 percent of Illinoisans would hike taxes on the 3 percent.
Everything was aligned in favor of the amendment.
And yet, it failed.
A majority of Illinoisans clearly didn’t trust lawmakers – who have mismanaged this state for decades – to handle more of their tax dollars. They recognized the progressive tax for what it really was: another tax hike that would let Illinois politicians avoid structural reforms and open the door to more hikes in the future.
That realization crossed party lines: About 500,000 more Illinoisans voted against the Fair Tax than voted for Donald Trump. They crossed party lines to vote against the amendment (2,753,526 no votes and 2,255,912 for Trump.) It will be interesting to see a detailed breakdown of who voted against the tax.
Illinoisans’ rejection of the amendment will have an immediate impact on the state’s financial crisis.
The loss of $3.1 billion in expected revenues will have Gov. Pritzker and lawmakers scrambling to manage the 2021 budget, which already has an official $6 billion deficit – and billions more when the true cost of Illinois’ retirement debts is added on.
Illinois lawmakers will be more anxious than ever for a federal bailout to cover the bigger deficit. But the expected outcome of the federal elections, particularly in the Senate, makes a true no-strings-attached bailout unlikely.
With no new revenues and no guarantee of federal cash, Gov. Pritzker and the legislature will be under more pressure to actually enact reforms. However, look for them to try everything else first.
They’ll likely borrow more money from the Federal Reserve, attempt to re-amortize pension debts, or try to enact the 20 percent income tax hike Pritzker threatened during the run-up to the election.
All of that could put Illinois’ credit rating in further jeopardy. The rating agencies are already facing pressure to follow through on their warnings about downgrading Illinois. Illinois is already just one notch from junk, so any downgrade will drop it to junk status.
Voters have roundly rejected tax hikes as a way to fix Illinois’ problems.
The next step is to gather support for real solutions: Roll back state mandates so property taxes can be slashed. End strikes and forced labor arbitration at the local level to make government more affordable for ordinary Illinoisans. Consolidate overlapping and duplicative local governments to cut down on municipal bureaucracy. And most importantly, pass structural retirement reforms, starting with a constitutional amendment for pensions.
Lawmakers have failed in their attempt to hang on to the status quo. Now residents must demand real changes.
See Wirepoints’ Pension Solutions page for our comprehensive retirement plan.