No. Middle class can’t afford it, and state won’t benefit from it
By BRYCE HILL
Want to pay higher taxes? If so, a progressive income tax is right up your alley.
But if you’re a middle-class Illinoisan, a progressive income tax for this state is something you simply can’t afford. Enacting a progressive income tax in Illinois was a hot topic this campaign season, but a quick peek at Illinois’ finances shows a simple truth: Scrapping Illinois’ constitutionally protected flat income tax could never provide middle class tax relief in our state.
Not only would a progressive income tax lead to higher taxes for middle-class Illinoisans, but it would also hurt the state’s economy without doing anything to improve its dire financial situation. By hiking taxes on residents and business owners alike, Illinois would see less investment, fewer jobs, and an economy that continues to lag the rest of the nation.
The numbers don’t add up
Over the past 10 years, government spending has grown 48 percent faster than personal incomes in Illinois. In other words, Illinois has been spending much more than it takes in, and that’s the state’s real problem.
It would be impossible for a progressive tax to fulfill promises of middle-class tax relief while also fixing the state’s broken pension systems, paying down its backlog of bills and funding more services as promised.
While Gov. J.B. Pritzker and other lawmakers who campaigned on the policy are full of good intentions, ultimately it’s a campaign promise that will harm most taxpayers. To deliver tax relief for the middle-class, Illinois needs to spend less.
Illinois lawmakers have yet to release any proposed tax rates, but the most recent progressive income tax proposal in the General Assembly would have raised income taxes on every person earning more than $17,300.
We need look no further than Minnesota – a state Pritzker has suggested we model our income tax after. When the progressive income tax was implemented there, the richest citizens paid top marginal tax rates of 5 percent. Today, the lowest marginal tax rate in the state is 5.35 percent. Low-income Minnesotans are paying more today than wealthy residents were when the tax was first introduced.
If Minnesota’s tax rates were applied to Illinois, the median Illinois family would have faced a tax increase of more than $660 this year – a 25 percent increase.
Our economy can’t afford it
Illinois’ economy is already lagging the majority of states and can’t afford another major tax hike. If Illinois had passed the most recent progressive tax proposal, which raised rates on nearly all Illinoisans, it would have cost the state an estimated 34,500 full-time jobs.
Illinois has experienced five consecutive years of population loss, shrinking by nearly 160,00 residents since 2013. The population loss was driven entirely by residents packing up and moving out of state in search of a stronger labor market.
Recent analysis revealed the 17 states without progressive income taxes have experienced faster overall economic, employment and wage growth. The states where businesses created the most jobs since the recession are Utah, Nevada and Florida; all states without progressive income taxes.
On the flip side, states with a progressive income tax see slower job creation and greater income inequality, with bigger gaps trending between the poor and wealthy. It’s no surprise there’s a growing trend of Americans fleeing states with a progressive income tax for states with a flat income tax – or no income tax at all.
Not ‘getting with the times’
Proponents of a progressive income tax claim Illinois needs to play catch up with the rest of the country. But other states have been moving in the exact opposite direction Pritzker and others propose we go. In 2013, North Carolina passed legislation that changed their progressive income tax into a flat income tax. Kentucky did the same in 2018.
While most states have chosen to reduce their state income taxes since the end of the recession, Illinois has raised them twice, and is considering doing so again with a progressive income tax.
Lack of bipartisan support
No Republicans coming into the 101st General Assembly supported last year’s House resolution for a progressive income tax, understanding the tax to be a Trojan horse for middle-class tax hikes. Meanwhile, a House resolution even saw current Democrat state Rep. Jerry Costello break ranks and oppose what would have been a $400 tax hike for the typical household in his district.
If the governor is serious about passing effective and popular legislation, he should instead support a bipartisan spending cap amendment from the 100th General Assembly.
The spending cap would limit the growth in government spending to what taxpayers can afford and allow for state spending to grow without requiring tax hikes. By providing certainty about the tax and budget environment, Illinois could stimulate the investment and job creation that residents so desperately need.
Claims that a progressive tax would spur economic growth fly in the face of macroeconomic data and the prevailing economic literature. And claims that it would provide middle-class tax relief can’t be realized, as demonstrated by the historical experience of other states and recent proposals in Springfield.
Instead, efforts to pass a progressive income tax in Illinois are motivated by Illinois’ persistent budget shortfalls. Despite receiving billions of dollars’ worth of new revenue in recent years, unsustainable state spending has left the state in the red for nearly 20 years, sinking Illinois’ economy to the bottom of the barrel.
A different path forward – one that restores confidence in state finances and could lead to lasting tax relief – is possible and should be the route lawmakers take instead.
Bryce Hill is a research analyst with the Illinois Policy Institute, a Springfield- and Chicago-based think tank that promotes smaller government and free-market principles.