(Editor's note: This article was published first at Illinois Policy Institute).
On April 1, Illinois Gov. J.B. Pritzker – along with six other Democratic governors – sent a letter to President Joe Biden urging him to remove the cap placed on State and Local Tax deductions by the 2017 Tax Cuts and Jobs Act.
The policy change would substantially benefit Pritzker. Based on his 2019 income tax returns, the governor would save an estimated $2.5 million annually on federal income taxes at current rates if Pritzker gets his way and the SALT cap is removed.
Had Pritzker gotten his way on another tax scheme and voters Nov. 3 not rejected his “fair tax,” the governor would have saved an estimated $3.65 million annually on his federal tax bill by eliminating the SALT cap, essentially eliminating the entire tax increase he told voters he was willing to pay under a progressive income tax.
Win No. 1, Pritzker gets his “fair tax” and pays an extra $3.7 million in state taxes, he estimated. Win No. 2, Pritzker gets the SALT cap removed and saves $3.65 million on his federal taxes. Getting both his wishes would end up netting him an income tax increase of only $52,603, not the $3.7 million tax hike he claimed he would pay.
He spent $58 million of his own money trying to convince voters to pass his “fair tax.”
Undoing the SALT cap would almost exclusively benefit the wealthy. Analysis by the Institute for Taxation and Economic Policy in 2020 found 86% of the benefits of removing the SALT cap would go to the top 5% of Americans. The bottom 60% of earners would receive no benefit.
Under current law, tax filers who itemize their tax returns – primarily those with higher incomes – rather than taking the standard deduction can only deduct $10,000 worth of select state and local taxes. The cap was put in place to collect $670 billion in additional federal income tax from high-income Americans during the next decade in order to fund reductions in statutory tax rates and the doubling of the standard deduction, which primarily benefits lower-income taxpayers.
Of course, no one can know the true extent to which Pritzker has been able to reduce his tax bills through loopholes and carve-outs over the years, because he refuses to release his full tax returns. In recent years it has been revealed Pritzker went to great lengths to avoid paying taxes, removing toilets from his Gold Coast mansion to skimp on his property tax bill by $331,000 and establishing shell corporations in the Bahamas in a likely attempt to avoid U.S. income taxes. The toilet ploy earned him a federal investigation.
The letter, which pushes for tax reforms that would almost exclusively benefit the wealthy, comes less than six months after Pritzker’s progressive income tax amendment was rejected by voters and is a significant departure from his previous stance on taxation. In the letter, Pritzker claims the cap hurts middle-class taxpayers and is “untenable” during these dire economic times. Because the data is clear on who directly benefits from the SALT deduction, one can only assume the governor is implying higher taxes on the wealthy also hurt Americans with lower incomes.
That is precisely the argument opponents of the “fair tax” made after the governor first unveiled his tax-the-rich scheme in 2019.
Tax hikes don’t just harm affluent households. They also affect the middle-class – especially job seekers. Higher personal and corporate income taxes reduce the amount of entrepreneurial activity and harm economic competitiveness. Tax hikes on small business owners reduce job openings as well as the wages of new hires.
That means fewer opportunities for all Illinoisans, especially those from low-income households who take longer to find stable jobs.
Lastly, when high-income individuals relocate to lower-tax environments and state revenues decline, it falls to lower-income families to make up the difference.
Pritzker is pushing for tax relief from the federal government, but here in his home state he’s busy enacting and pushing for policies that punish ordinary people. He’s gone after up to $1 billion in tax relief that would help 440,000 businesses stay afloat. His fiscal year 2022 budget proposal includes nine new taxes worth nearly $1 billion. And the governor also wants to eliminate a tax credit scholarship program that gives low-income and working-class kids and families access to educational options.
Tax policy changes have incentive and deficit effects which affect everyone. Pritzker seems to agree the additional tax burden the SALT cap imposes on him and other affluent Americans actually harms the middle class.
If only Pritzker could apply his policy expertise to look out for all Illinoisans – not just himself, his friends and special interest groups. Instead, by undoing the SALT cap, he hopes to reduce wealthy Illinoisans’ opposition to higher state taxes and maybe even gain their support.
Too bad more state revenue does little for low-income Illinoisans because of the costs associated with unsustainable growth in the state’s pension liabilities.