Taxpayers are protected by the Illinois Constitution from having the same $1 taxed more than once, but that protection would vanish if voters approve Gov. J.B. Pritzker’s “fair tax” amendment.
Double or even triple taxation would be allowed were the constitution’s flat tax protections removed, thanks to language swapped into the proposal shortly before state lawmakers placed the tax hike on the Nov. 3 ballot.
Currently, the state constitution income tax rules read, “at any one time there may be no more than one such tax imposed by the State for State purposes on individuals and one such tax so imposed on corporations.”
That principle was protected in the original language of Senate Joint Resolution Constitutional Amendment 1. Multiple taxation on the same income was prohibited in the proposed amendment state Sen. Don Harmon, D-Oak Park, introduced in January 2019:
“There may be one tax on the income of individuals and corporations. This may be a fair tax where lower rates apply to lower income levels and higher rates apply to higher income levels. No government other than the State may impose a tax on or measured by income.”
In April 2019, Harmon filed an amendment to the resolution that ultimately passed the General Assembly with only Democrats voting in favor. The new language reads simply, “The General Assembly shall provide by law for the rate or rates of any tax on or measured by income imposed by the State.”
This change to the General Assembly’s taxing powers would give Springfield much more authority to decide whom to tax, how much to tax, and even how many times to tax particular individuals or businesses. The language includes no restrictions or limitations on state politicians’ taxing power, other than a cap on the ratio between taxes imposed on corporations and on individuals. It would allow virtually any type of income tax to be imposed by simple majority.
Todd Maisch, president and CEO of the Illinois Chamber of Commerce, raised concerns about multiple taxation in committee testimony about the ballot measure.
“If somebody decides there’s a need for another income tax increase, I think it’s going to look a lot like a ‘special assessment for public safety.’ It’s going to be a ‘special tax dedicated to education.’ It’s going to go under that guise,” Maisch said.
It’s easy to imagine lawmakers looking to special income surcharges, or taxes imposed on top of the regularly imposed income tax, given the horrendous condition of state finances. Among U.S. states, Illinois has the second largest net debt relative to the size of its economy, the nation’s lowest credit rating and the worst pension debt crisis.
Even before economic fallout related to COVID-19 blew a $4.6 billion hole in expected revenue collections for the coming budget year, the $200 million of progressive tax revenue Pritzker pledged to pensions would not have been enough to even keep up with expected annual increases in pension costs.
After the COVID-19 recession, the state will be able to raise less revenue with initially proposed progressive tax rates, while at the same time pension contribution demands will grow faster than expected because of expected shortfalls in investment returns. Lawmakers’ appetite for more of taxpayers’ money is likely to be at an all-time high given these fiscal pressures. More than a quarter of the state budget already goes to pension costs each year, and without a constitutional amendment allowing for pension reform, those costs will continue to increase.
Voters should think twice before granting lawmakers the power to apply multiple income taxes. Lawmakers could, for example, enact a 1% pension tax surcharge on top of the normal rates if voters approve the amendment.
In fact, multiple taxation schemes have appeared in governments with progressive tax systems before. In 1968, President Lyndon B. Johnson signed legislation that imposed a 10% federal surcharge on income to help fund the Vietnam War. Connecticut, the only state to enact a progressive income tax in the past 30 years, charges large companies a 10% surcharge on corporate income tax. New Jersey, the state with pension and debt problems most similar to those in Illinois, currently imposes a 1.5% temporary surcharge on corporate income over $1 million.
Illinois politicians have misled voters about taxes and spending repeatedly in recent decades, contributing to significant public distrust. That track record combined with runaway spending and debt offers plenty of reason not to grant politicians unrestricted new taxing powers that include the ability to double or even triple tax the same $1 earned.