Despite Gov. Bruce Rauner’s repeated protests, experts still believe that progressive tax will indeed be a good thing for Illinois. However, the progressive tax or “fair tax” as some call it, came up short in a vote this week.
Still, financial and real estate experts believe that residents of Illinois are in dire need of an income tax rule that will benefit most of the population.
Illinois works under the flat-income tax rule. This means that everybody, regardless of their income levels, is charged at the same rate. The flat-income tax rate can be unfair and burdensome to the middle class and the lower middle class population because they have to inevitably spend a major chunk of their income on necessities. The lower-income population is hit even more in the disguise of sales taxes, payroll taxes and property taxes. Another devastating irony of the flat income tax is that the percentage of income a working-class person pays in overall taxes is much higher than the percentage paid by a wealthy person.
Yes, Illinois needs to overhaul the flat-income tax system.
What is the Progressive Tax Amendment?
Progressive income tax is a welcome relief in a country where the income and wealth disparity is only increasing by the day. Under the progressive taxation, people in the high-income category will be charged at a higher percentage compared to those in the lower-income category. Simulating the federal income tax structure, progressive income tax will make the entire tax load a little bit more equal.
State Rep. Christian Mitchell, D-Chicago, introduced a constitutional amendment to address the issue of unfair taxation in Illinois. Unfortunately, his amendment was just defeated in the legislature.
His proposal would have helped lead Illinois into becoming a gradual taxation state. Progressive income tax is a reform that is long overdue in Illinois, according to Mitchell. Currently, 33 states in the U.S. have adopted progressive income tax. Only eight states including Illinois are working under the flat-tax rule.
The first time Illinois adopted the flat-tax structure, the rate was set at 2.5 percent in 1969. At the time, the disparities in incomes among American households were not as great as they are today.
As time passed, the wealth distribution chart has gone haywire. Between 1979 and 2007, the top 1 percent of the nation’s wealth increased their incomes 275 percent, whereas those at the bottom increased just by 18 percent, according to the Congressional Budget Office. At the current flat-income tax rate of 3.75 percent, the rich keep getting richer and the poor, poorer. The income keeps piling up for the wealthier lot, whereas the average American struggles with low-income growth and high-taxation rate. And hence, the income and wealth disparity keeps increasing. Experts believe that adopting the progressive tax would even things out a bit.
The amendment proposed by Rep. Lou Lang, D-Skokie, would have lowered taxes for more than 99 percent of taxpayers. At the same time, people with incomes of more than $1 million will see their tax rate raised from 3.75 percent to 9.75 percent. The proposal would bring in an additional $1.9 billion in annual revenue, says Lang.
Critics Argue Graduated Tax Will Kill Businesses
Gov. Bruce Rauner and merchants at the Illinois Chamber of Commerce have staunchly expressed their criticism of the proposal. They argue that progressive rates would hurt small businesses that pay taxes at the personal rather than the corporate rate. In simple words, Rauner hasn’t missed an opportunity to remind the public that the graduated tax will be bad for businesses in Illinois.
“I really don’t support a graduated income tax,” Rauner said. “I think that could well be the straw that breaks the camel’s back for Illinois’ economic competitiveness. If we go to a graduated income tax, that will quickly spike up and put our income tax among the highest in America, and that will be devastating to recruiting companies and growing our economy.”
Rauner believes that a high income tax will cause successful businesses to flee the state. He added that it was unfair to put the burden of covering the deficit on the high-income folks.
By Priyam Vora