The federal government and most states, including Missouri, levy income taxes via a system of tax brackets — the more you earn, the higher your tax rate as a percentage of income. Illinois is one of a handful of states that do it differently, using a 4.95% flat tax rate that’s the same whether you’re a millionaire or a janitor. The obvious problem with that is, while 4.95% means a lot more money from the millionaire than from the janitor, it’s a far more significant hit to the janitor, who is likely already living on the edge financially.
An Illinois ballot initiative next month, backed by Democratic Gov. J.B. Pritzker, would put Illinois on a graduated scale. It isn’t the radical income grab that its opponents are trying to claim, but a commonly used system that will spread the pain more equitably while addressing the state’s epic fiscal problems. We recommend Illinoisans approve the Fair Tax constitutional amendment on Nov. 3.
Illinois’ chronic budget mess is driven mostly by its almost $140 billion in unfunded pension liability (the difference between what the state owes retired state workers and what’s available through its pension funds). The cost of that debt eats deeply into state income and services and has left Illinois with America’s lowest credit rating, at just above junk status. Republicans within and outside Illinois love to lay all this on the state’s current Democratic power structure, but in fact it’s an ongoing crisis that has been driven by decades of inadequate pension funding under both parties. As everywhere, the pandemic has only worsened the situation.
The Fair Tax amendment would address it by splitting that single 4.95% rate into six graduated rates, from 4.75% on the first $10,000 of income to 7.99% on income over $1 million. The corporate tax rate would also rise to 7.99%. Though it would boost state revenue by more than $3 billion annually, proponents say the effective tax bills of most Illinoisans will remain roughly the same or decrease modestly. It would be the rich and corporations fueling most of the new windfall. The amendment needs 60% approval to pass.
Opponents argue that residents and businesses will flee Illinois with ever-greater speed if taxes rise for the rich. But studies have shown the conservative bugaboo of “tax flight” is mostly mythical. California, for example, uses the highest state tax brackets in America, topping out at more than 12%, yet is consistently ranked at or near the top in terms of economic health.
While it’s true Illinois has been losing population, that’s likely tied to issues like the quality of schools, infrastructure and state services — areas that suffer when the state budget is consistently underfunded. The Fair Tax amendment would alleviate that underfunding while doing away with the inequity of taxing working people like they’re millionaires.
Views from the editorial board, opinions from guest and national columnists plus the latest letters from our readers.