‘Fair tax’ backers’ own data show progressive income tax hikes harm middle class the most

By Vincent Caruso, Illinois Policy Institute | May 15, 2019


Gov. J.B. Pritzker has already walked away from his “fair tax” proposal’s signature promise of middle-class tax relief. A new report documenting other progressive tax states might help explain why.

The Center for Tax and Budget Accountability, or CTBA, is one advocacy group backing Pritzker’s progressive tax push. Their most recent research strengthens the case against the governor’s proposal.

Progressive tax states don’t always hike taxes, according to the report, but when they do, the middle class is by far the most frequent target.

The report’s central finding is that states under a progressive income tax structure “are more than twice as likely to cut taxes” than raise them. This would be encouraging news for Illinois’ middle class if progressive tax advocates weren’t floating the plan as a means for raising more revenue. Unfortunately, CTBA’s analysis shows that in the instances in which progressive tax states raise income tax revenue, the middle class overwhelmingly pays the price.

Since 2003, there were 33 tax hikes on income below $250,000 compared with only 10 increases on income above $250,000, according to CTBA. This directly contradicts CTBA and the governor’s narrative about how a progressive tax system would impact differing socio-economic groups. It does closely follow how the middle and lower classes have fared in the years since Connecticut swapped its flat tax for a progressive tax structure, the only state in the past 30 years to do so and as other states recognized progressive taxation’s destructive economic impact.

Connecticut transformed its income tax system under fiscal pressures similar to that of Illinois, and did so with similar goals. In other words, Connecticut offers a far more accurate comparison than does lumping together all progressive tax states.

CTBA’s analysis, for example, includes states such as Georgia, Idaho, Arkansas and Louisiana, whose progressive taxes are effectively flat because their top rate applies to the majority of those states’ income earners. That’s a far cry from the rate structure Pritzker and state lawmakers have proposed, and it’s why PolitiFact labeled as “mostly false” the claim that progressive tax states generally tax the wealthy at a higher rate.

What CTBA’s research makes clear is this: While progressive tax states don’t always raise taxes, when they do, it’s the middle class that suffers.

And if Pritzker truly expects to finance his ambitious spending promises, on top of his goal of closing Illinois’ deficit and increasing spending, taxes on the middle class inevitably will go up. An Illinois Policy Institute analysis found that the typical middle-income family would have to endure a tax hike of up to $3,500 to fund those promises.

CTBA executive director Ralph Martire has himself admitted the governor’s proposal wouldn’t raise the revenue needed to deliver Pritzker’s promises, creating the likelihood of new or higher taxes.

In reality, the only way to provide real, lasting tax relief in Illinois is by addressing the root cause of the state’s persistent tax hikes. Namely, that is the unsustainable growth in public pension costs, which now consume more than a quarter of general fund revenues.

A progressive tax system in Illinois would fail to address the state’s most urgent fiscal crisis, leaving public employees’ retirement security in jeopardy and threatening taxpayers with future tax hikes. Only through constitutional pension reform can the state avoid those threats. Fortunately, the Illinois Policy Institute’s Budget Solutions 2020 plan would help the governor achieve his worthwhile goals of fiscal stability and middle-class tax relief.

Pritzker should listen to the growing number of voices opposing his “fair tax” amendment, which CTBA’s research again shows would quickly prove unfair to the middle class. His goals and Illinois would best be served by a constitutional amendment that would protect already-earned pension benefits but allow for changes to the growth of future, unearned benefits.

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