Income tax changes in other states are validating Illinois voters who killed the ‘Fair Tax’ – Wirepoints Quickpoint

Iowa is likely to join a list of states flattening and reducing their progressive income tax rates. Iowa Gov. Kim Reynolds last week proposed gradually consolidating brackets with an eventual goal of a flat 4% rate by 2026.

Iowa Gov. Kim Reynolds delivering her tax proposal. Source: Wall Street Journal.

That will “help the Hawkeye State keep up amid intensifying Midwest tax competition,” as The Wall Street Journal put it this week. “To the west, Nebraska cut its top corporate tax rate to 7.25% from 7.81% last year, and to the east, Wisconsin’s Democratic Gov. Tony Evers signed the GOP Legislature’s bill cutting the tax rate on middle incomes to 5.3% from 6.27%,” wrote the Journal.

That’s important because, in the long run, Illinois’ fiscal challenge is all about restoring competitiveness, particularly with its neighbors. Its quality of services and total tax burden must both be made competitive again to stem the death spiral of fewer taxpayers, a shrinking tax base and higher taxes.

In 2020, Illinois voters rejected a referendum that would have eliminated a constitutionally mandated flat tax. Along with accompanying legislation that would have become effective, Illinois’s flat tax of 4.95% would have been replaced by progressively higher rates, resulting in a projected net tax increase of around $3.4 billion.

Illinois voters apparently understood that would have backfired and that their lawmakers could not be trusted with more revenue. Even though about 97% of them would not have faced an initial tax increase, they rejected the referendum soundly. It received about 45% “yes” votes and 55% “no” votes.

It’s not just Illinois’s neighboring states that are flattening and reducing income taxes. Earlier this year, Arizona flattened its income tax rate to 2.5%, though there will still be a second bracket on income over $250,000. However, no one will pay a top rate above 4.5%.

Some other states are likely to do the same. Most are flooded with cash with their next budgeting season now approaching, thanks to the unspeakable deluge of federal handouts disguised as pandemic assistance.

Illinois voters aren’t often to be congratulated, but they made the right call by killing the “Fair Tax.” Had they authorized a progressive tax increase, the state would now be facing a still worsening competitive disadvantage and an accelerating death spiral. Phew.

-Mark Glennon

Correction: This column was updated to change the estimated revenue from the Fair Tax from $5 billion to $3.4 billion.

22 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments
Mike Ferri
2 years ago

Illinois will never come out of this financial black hole until the citizens of the state rid themselves of those Leftist politicians who have an endless addiction to perpetual spending and continually higher taxes on EVERYTHING, which make it harder on those, not of great financial means, to live a normal life without paying through the nose for food, gas and just about every other service, including utilities. Eliminate abortion funding as it takes life, which is wrong. Get the funding for police back up to where it belongs because that helps to keep everyone safe and cuts down all… Read more »

Paul Boomer
2 years ago
Reply to  Mike Ferri

Never going to happen because Cook/County/Chicago rule the state and the voters there will never change. Until, by some miracle, the light switches on that democraps have run Illinois into the ground with their insane policies that are completely opposite from about 80% of the rest of the state, nothing will change. High taxes, high crime, corruption etc are readily accepted in Cook/County/Chicago.

Marie
2 years ago

I had yard signs made and gave them to all of my friends. I had buttons made we all wore those. I learned everything I could and told everyone I came in contact with what a bad idea the Progressive tax was and I explained why. It scared the bejesus out of me. We can never give Illinois government that kind of authority. Be aware the November 22 election is going to have Amendment 1 on it. Do your research, understand what Illinois government wants to do and rally really hard against it. We cannot have this law put into… Read more »

jajujon
2 years ago

Illinois voters were justified in defeating the “Fair” tax proposal, putting a lid on tax rates. Instead, additional revenue has been derived from (somewhat) improving economic activity. Meanwhile, the public sector unions, bureaucrats and others keep pressing for more taxes to feed their incessant demands for more wasteful spending. A rational person would think that Illinois’ political elitists would figure out a compromise. Instead, they approve ever larger budgets funded by the worst financial alternative – borrowing – combined with an overflowing bucket of (short term) Federal cash and think we’re balanced. It will take years, if ever, for this… Read more »

ThinkPositive
2 years ago

If only Illinois residents would do the math comparing Illinois to a red state. Most would realize they would save $5,000 yearly paying less property taxes and see their home appreciate an additional $5,000. That’s $10,000 a year! Find a state with no income tax and the difference between states just grows. As more Illinois residents finally do the math and leave, the disparity will grow. So all you Illinois holdouts need to ask yourselves, “Just how much do I really love the Cubs and Bears?”

Mike Ferri
2 years ago
Reply to  ThinkPositive

The only way to get in the Red is to elect those who are ‘Red’ (not Communist red – Republican Red). The current Dems who control everything are continually raising taxes and spending money on those things they have no business spending it on, like skyrocketing Gasoline taxes, property taxes and higher heating costs. Now they want Amendment 1 rammed through, so they can increase property taxes anytime they want, without requiring voting input from taxpayers, whose pockets they are continually picking to empty with no end in sight. No wonder people are leaving the state. Illinois has lost the… Read more »

Wilmette
2 years ago

Iowa has been rather impressive post-COVID. I don’t know if this is still the case but they U of I was also the only school in the B10 not to have any mask or vaxx requirements.

Honest Jerk
2 years ago

Illinois leaders act as if residents/consumers have no alternatives and life doesn’t exist beyond the state border. Then again, maybe they are right. Why else would so many Wirepoint readers/commentors remain year after year and complain instead of move out? Maybe it’s time to look in the mirror and identify the real problem. After all, it’s your taxes that support everything this state represents. Normally, elections are the tool used to bring about change but that doesn’t seem to work in Illinois. Only when enough residents flee will Illinois leaders be forced to face reality. Until then, have fun complaining… Read more »

debtsor
2 years ago
Reply to  Honest Jerk

Northern IL was a tolerable place for households with above average income. Its really only become intolerable during the Trump era as progressives took over the state. I’ve got deep business roots here and my household income is not easily portable or replicated by moving to Tennessee. On top of this, there is raging and dangerous nationwide housing bubble. This house below costs 75% more than my house and is smaller in size (because there no basement). https://www.redfin.com/FL/Jupiter/143-Via-Rosina-33458/home/42579658 It sold for $440,000 in 2005 and is $800k now. The property taxes are the same, $8k there are my house here… Read more »

Freddy
2 years ago
Reply to  debtsor

Here’s a comparison of a home in Boulder,Co Note the taxes-$261 per month
https://www.redfin.com/CO/Boulder/4614-Almond-Ln-80301/unit-2/home/35298558
My home value in the Rockford rental is still the same as purchase price in 2008. $184K then $182K now according to the assessor but I could get a little more now but taxes are $7,100 or 4% of value compared to the Boulder home at 0.56% of total value. Now the Fed may increase interest rates soon which will then affect value.
Whatever happened to the property tax task force?

nixit
2 years ago
Reply to  Freddy

It was a tax farce.

debtsor
2 years ago
Reply to  Freddy

That townhouse in boulder is crazy. It sold for $290,000 in 2010 and $375,000 in 2015. It’s listed now for $800,000, which is insane. Which goes to my point: the cheaper real taxes will take years to offset the higher home price. The time to leave IL was 3 to 5 years ago; but we had a Republican governor, Trump was president, the progressives were a handful of nobodies….now the progressives like JB run the entire state, and while we think they are running the state into the ground, their voters believe they live in a progressive utopia.

Freddy
2 years ago
Reply to  debtsor

Take a look at the average home price in Boulder broken down by value. https://www.noradarealestate.com/blog/boulder-real-estate-market/ There are a lot of towns where property taxes were very low and home prices there were actually an investment not just an ATM machine like it is here. Phoenix home values increased by 33% in a year and taxes are approx 0.84% of value on average. A big reason for high taxes here is Ptell and home rule within a Ptell county which gives them additional taxing powers.Taxing bodies can never get less money then what was levied the year before regardless of value.… Read more »

ThinkPositive
2 years ago
Reply to  debtsor

Housing appreciation has been insane last 2 years and, in my opinion, has deluded many owners in Illinois into thinking their homes are a good investment. They see their home appreciate at 10-15% and think that’s great, but don’t realize that home would be appreciating at 20% in another state. Also, with inflation at 7% and Illinois real estate taxes being what they are, getting a 10-15% appreciation is basically breaking even. Unfortunately, the typical Illinois homeowner can’t seem to do the math or connect the dots. Once the housing bubble ends, owning a home in Illinois will once again… Read more »

debtsor
2 years ago
Reply to  ThinkPositive

On the positive side, less appreciation means housing prices have less fall when the bubble bursts! But in all seriousness, the 20% appreciation is terrible for everybody. Wages are not rising to match home prices and the locals and townies themselves are priced out, or just overpaying. Meanwhile, millions of homeowners haven’t made a mortgage payment or student loan payment since the pandemic started, and millions more used their home as an ATM, borrowing against their home’s equity at ridiculously low interest rates. We all remember the last time this crashed and it left a trail of tears. Prices are… Read more »

debtsor
2 years ago
Reply to  debtsor

https://www.krem.com/article/travel/rv-sales-record-high-pandemic/293-ead9340a-3ed0-446e-a012-4555bca6caf0

RV sales at record high since pandemic start
Officials said RV sales are up 30% since pre-pandemic levels. The RV Industry Association said it expects over 600,000 units will be sold in 2022.

How many debt donkeys borrowed against their home equity to buy a RV at the top of the market?

Inflation isn’t just caused by the government printing money, it’s also caused by banks lending credit to borrowers based on paper equity…..

debtsor
2 years ago
Reply to  debtsor

https://www.foxbusiness.com/personal-finance/mba-2021-mortgage-refinances-forecast MBA predicts 2021 to be third-highest year for mortgage refinances, slowdown in 2022 The MBA released its prediction for 2022, showing mortgage refinances could slow down.  New mortgage purchases will rise to 1.61 trillion in 2021, eclipsing the previous all-time high of $1.51 trillion in 2005, according to the Mortgage Bankers Association’s (MBA) 2022 housing market and mortgage rate predictions. It predicted refinance volume to drop slightly, to $2.63 trillion, but still remain the third-highest year ever.  Total mortgage originations are expected to drop to $2.6 trillion in 2022, and more housing activity will be centered on home purchases, rather… Read more »

nixit
2 years ago

Illinois does not know how to implement revenue neutral improvements in the tax code that would improve our financial stability while broadening the tax base. For example, they could expand sales tax to services while lowering the overall sales tax rate. When the state doubled the motor fuel tax, that was a perfect time to stop charging sales taxes on gas, something only a handful of state do. Of course, they didn’t, even though they’d still come out billions of dollars ahead. They could raise the flat tax rate a quarter point but triple the personal exemption, thus only high… Read more »

Pensions Paid First
2 years ago
Reply to  nixit

The state can’t afford to be revenue neutral. It’s still underfunding pensions every year by about 5 billion. This underfunding is no different than borrowing 5 billion a year. So unless you cut out similar amount in spending elsewhere the state needs more revenue.

willowglen
2 years ago

PPF – shouldn’t phrase your point a bit differently? Given that the political class in Illinois will simply refuse to even consider cutting spending, the state therefore needs more revenue. Of course, the fact that Illinois citizens already carry among the highest, if not highest overall tax burdens makes the task of raising revenue far easier said than done (progressives always tilt toward redistributing from the “rich”) Good luck in collecting the revenue. The other alternative you did not mention is increased borrowing, which in fact what the politicians will do until they cannot any longer, The shame of it… Read more »

nixit
2 years ago

Iowa lets you deduct federal income taxes paid from state taxable income too, so their effective tax rates aren’t as progressive or high as they seem. And their tax brackets are indexed against inflation, whereas the Fair Tax was not, which is kind of a big deal when inflation is 7%. What really killed the Fair Tax was property taxes. They wanted to exchange a tiny reduction in income taxes for a sweeping tax policy change without addressing the #1 sticking point for all taxpayers. All these states with progressive income taxes have lower property taxes. Hell, states with NO… Read more »

SIGN UP HERE FOR FREE WIREPOINTS DAILY NEWSLETTER

Home Page Signup
First
Last
Check all you would like to receive:

FOLLOW US

 

WIREPOINTS ORIGINAL STORIES

A statewide concern: Illinois’ population decline outpaces neighboring states – Wirepoints on ABC20 Champaign

“We are not in good shape” Wirepoints’ Ted Dabrowski told ABC 20 Champaign during a segment on Illinois’ latest population losses. Illinois was one of just three states to shrink in the 2010-2020 period and has lost another 300,000 people since then. Ted says things need to change. “It’s too expensive to live here, there aren’t enough good jobs and nobody trusts the government anymore. There’s just other places to go where you can be more satisfied.”

Read More »

WE’RE A NONPROFIT AND YOUR CONTRIBUTIONS ARE DEDUCTIBLE.

SEARCH ALL HISTORY

CONTACT / TERMS OF USE