Fulfilling one of his main campaign’s promises, Governor Pritzker proposed “Fair Tax for Illinois” amendment, introducing a graduated tax income. According to the governor’s statement, the new tax structure is expected to generate around $3.4 billion in new revenue. While the new profit is highly anticipated in the financially strapped state, not everyone agrees with the new system. Let’s review the proposed solution in details.
How would the new tax system work?
According to the Illinois Constitution signed in 1971, the state has a flat 4.95% tax rate, which is currently equal for all – low income, middle class and upper class. According to the amendment proposed by Pritzker, the new tax rate would be graduating from 4.75% to 7.95%. The lowest tax margin of 4.75% would be applied to those who make less than $10,000 of net income annually. Below is a full overview of the new tax rates proposed by the governor:
4.75% (27.2% of Illinois taxpayers): $0 – $10,000 net income
4.90% (58.9% of Illinois taxpayers): $10,001 – $100,000 net income
4.95% (11.1% of Illinois taxpayers): $100,001 – $250,000 net income
7.75% (1.9% of Illinois taxpayers): $250,001 – $500,000 net income
7.85% (0.6% of Illinois taxpayers): $500,001 – $1,000,000 net income
7.95% (0.6% of Illinois taxpayers): over $1,000,000 net income
What would be the new proposed tax credits?
According to Pritzker’s plan, tax credits per child would be expanded. Single parents earning less than $40K a year will get the full credit. Additionally, other middle-class groups would also become to be qualified for tax credits per child. For instance, single filers who are at the net income level below $80K, and joint filers who are at the net income level below $100K will become qualified for an additional $100 tax credit per child.
There would be also increase in a residential tax credit, ranging from 5 to 6 percent. This would help to offset the high property tax burden Illinois residents have been facing during the past years, which is in fact one of the highest in the nation. According to Pritzker, a single homeowner who makes less that $250,000 would see an increase of their property tax write-off of 20%.
How much money would the new system bring to the state budget?
The new graduated tax system is expected to generate $3.4 billion revenue within the next fiscal year. Additionally, it is anticipated that this new revenue would also eat away the growing $15 billion in debt piled up in the state’s overdue bills and also help the state make up its pension promises, where a shortage of $134 billion is currently present.
When would the new system come into effect?
Since “Fair Tax Illinois” requires the changes to be made to the current state’s constitution, it would have to be approved by 3/5th majorities in the General Assembly and the voters as well, which would be feasible at the November 2020 election at the earliest.
What’s the current opposition to the proposed amendment?
Todd Maisch, president and CEO of the Illinois Chamber of Commerce, stated that 3 percent of the state’s wealthiest residents would have to pay for the state’s deficit mostly by themselves, which may cause a lot of larger, highly profitable businesses to flee the state.
“People want to see that we’ve got spending under control. We’ve got a lot of new spending in this (proposed) budget. They want to see things that will spur growth. Instead, you’ve got a $15 minimum wage and now a graduated income tax. That doesn’t say ‘economic growth’ to me,” Maisch stated.
GOP Leader Jim Durkin and Senate Minority Leader Bill Brady have also announced their opposition to the bill.
How many states have already adopted graduated tax system?
To date, 41 states have been utilizing it. Along with Illinois, the only states that have flat rate tax structure are Colorado, Indiana, Michigan, Pennsylvania and Utah.
According to Gov. Pritzker, the other two options to cutting the state’s budget deficit would be to implement cuts to the state services across the board (including K-12 education, universities and community colleges, state police and social service agencies), or to raise the flat rate from 4.95% to 5.95% for everyone.
“In the weeks ahead, we’re looking forward to discussing and debating this proposal with members of the General Assembly on both sides of the aisle. I respect the right of opponents to disagree with this proposal. But they should do so in good faith with a specific counter proposal. Not pie in the sky. We should all demand that they tell you specifically what they support that will address a $3.2 billion-dollar budget deficit, pay down $15 billion of debt from unpaid bills, and protect working families,” Pritzker stated.