Illinois Senate Democrats recently passed an income tax hike that would raise the individual rate to nearly 5 percent. This tax hike would hit Illinoisans’ wallets and further weaken the state’s economy.
But the negative effect of the tax hike wouldn’t end there. Such a tax hike would also open the door to a progressive tax hike pitch from any candidate for governor.
A progressive tax structure would allow politicians to tax personal incomes at increasingly higher rates. An Illinois lawmaker pitched such a plan in 2013 that would have imposed a 4 percent rate on anyone earning just $18,000 a year, with rates going all the way up to 9 percent for top earners. Middle-class earners would have faced rates of 5-7 percent.
Residents of Illinois are already struggling with the nation’s highest property taxes and one of the weakest economies in the nation. Tax hikes would only put a further strain on people’s wallets, their job prospects and the economy.
And an influx of revenues would relieve the pressure for reforms to Illinois’ structural problems, just as the additional $32 billion taxpayers forked over during the 2011-2014 tax hike allowed politicians to put off necessary reforms.
But the bigger danger is that a income tax hike to 5 percent makes a call for a progressive tax system during the 2018 gubernatorial race a much easier sell. That’s because the legislature would already have done the dirty work of raising taxes.
All a gubernatorial candidate would have to do is run on changing the tax rate – lowering it for most, but promising to raise it on the rich.
For example, a candidate can promise a tax rate below 5 percent for Illinoisans making less than $100,000, giving 80 percent of Illinoisans a tax break. Then, to make up for the revenue loss, they can hike taxes on the “rich” through increasingly higher rates above 5 percent. California’s highest tax bracket, for example, is at 13.3 percent.
But a progressive candidate’s math only works out if income taxes have already gone up – as they would under the Senate Democrats’ income tax hike.
In contrast, if Illinois’ rate remains at a flat 3.75 percent, politicians can’t easily raise billions in new tax revenues and at the same time promise a tax cut to most through a progressive tax plan.
Some will correctly argue that a progressive tax can’t pass without a constitutional amendment, and the soonest it can happen is after the 2018 election.
But that won’t matter on the campaign trail. All a progressive-tax candidate has to do is run on it. And promise it. And it’ll be hard for most Illinoisans – already overtaxed – to reject this proposal for the mistake it is.
Illinoisans don’t need a progressive tax, which exaggerates booms and busts in revenues. This tax policy contributes to budget deficits and makes tax receipts more volatile. Over time, it ends up targeting the middle class. And it punishes success – driving people away.
The General Assembly should reject an income tax hike and close the door on the call for a progressive tax.