Tuesday, January 18, 2011

No New Taxes?

This past week the Illinois Legislature passed a major increase in state taxes on personal income, from 3% to 5%, and Governor Pat Quinn signed the bill. Corporate income taxes will also rise.

Many people are very unhappy about the prospect of higher taxes, and are saying bad things about our politicians. The comments that people have posted online are vicious. A local columnist, Jay Jamison, wrote that our legislators are stupid and corrupt. A lot of heat, when we need more serious thought about an important subject. It is worth looking at tax rates around the country to see how Illinois compares with other states. The Tax Foundation, a conservative anti-tax organization, provides much valuable information.

Seven states have no income tax, and 2 states tax only interest and dividend income. Among all the others, the Tax Foundation gave Illinois the highest ranking, meaning Illinois had the lowest overall personal tax rate, before this new law.

Unlike most other states, income in Illinois is taxed at a flat rate, no matter how high or low the income. At 3%, Illinois had the lowest rate of the 7 states with flat rates. Among the other 34 states with graduated rates, most have a lower rate for the poorest taxpayers, but every one had a higher rate for upper brackets. That means that better off people in Illinois have been paying the lowest income taxes in the country, except for the states with no income tax. That is certainly one reason why Illinois has such a disastrous debt problem. In fact, in most states the 233,000 Illinois households with incomes of more than $200,000 per year would pay at least twice as much tax. Illinois has long been a tax haven for the rich. Our tax receipts from middle-class and upper-class taxpayers are so low that the state has not been able to cover spending year after year.

Democrat Pat Quinn was very clear in his campaign for Governor that he favored raising taxes substantially. Overall he was not a particularly strong candidate: he is a poor speaker, he made numerous public relations goofs during the campaign, he could point to no particular achievements of his administration, and he represented the party in power during a time of severe economic crisis. Republican Bill Brady made his opposition to any increase in taxes his primary selling point. He and other Republicans relentlessly pounded their anti-tax message during the campaign.

The voters spoke in November: they picked Quinn and a tax increase over Brady and no new taxes. One reason is that Brady could not identify for voters where he would cut much spending. The opponents of taxes did not propose any reasonable alternative to raising taxes to solve Illinois’ debt crisis.

One response of anti-tax pundits to these facts might be that Illinois voters are stupid and corrupt. But there’s more. The Tax Foundation takes an annual Tax Attitudes Survey across the country. The latest data they offer is for 2009. They asked, “Would you support or oppose the government redistributing wealth by a much higher income tax on high income earners?” Note how loaded the question is -- it says a progressive income tax redistributes wealth and asks about a much higher rate on high incomes. Yet here are the results: national support for a highly graduated tax system, 52%; oppose, 31%; not sure or neither one, 17%.

Because the discussion about taxes in Illinois has focused entirely on their level, nothing has been said about their structure. Under the new law, Illinois will now tax our poorer citizens at a higher rate than all but 3 states. Only 16 states will tax their richest citizens at a lower rate than Illinois. Illinois will be a worse place to be poor, but remains a good place to be rich.

Illinois’ tax system has contributed to our state debt crisis. It will continue to contribute to the social crisis of poverty and economic inequality which has vastly increased over the past few years. That is not what voters want.

Steve Hochstadt

Jacksonville IL

Published in the Jacksonville Journal-Courier on January 18, 2011

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