THE FAIR TAX – A CONCEPT ROOTED IN FAIRNESS

THE FAIR TAX – A CONCEPT ROOTED IN FAIRNESS

By Joanne Williams

In the November presidential election you will be asked to vote on a change to the Illinois Constitution (the Fair Tax referendum) to allow the state to implement a graduated income tax – meaning the wealthy will have a higher tax rate than the middle class or the working poor – in place of the currently mandated flat tax across all incomes.

The proposed graduated tax plan would:

1. Raise taxes to 7.75% ONLY on incomes OVER $250,000 
2. Leave the current rate of 4.95% on incomes from $100,000 to $250,000
3. Reduce the rate on incomes below $100,000

Some key talking points:

• The pandemic has made it clear that we are all in a crisis – some will weather it better that others.  The disproportionate effect of the pandemic - hitting hourly and our “essential” workers with greater impact - makes clear the fundamental unfairness of the flat rate income tax in which every dollar is taxed at the same rate no matter how rich or poor you are. The Fair Tax would require the wealthiest to pick up a little more of the tab.  
• But haven’t the wealthiest been hurt by the pandemic too? Their income has taken a hit also, but if their income is now lower, their tax bill will also be lower.  Nobody pays taxes on money they haven’t made.  And anybody whose income has fallen below the $250,000 threshold won’t be affected by the higher rate.
• The current Illinois flat tax system is one of the most unfair in the country.  The average middle class family pays close to 13% of its income in state and local taxes while the top 1% pay only 7% of their income in state and local taxes.
• 97% of Illinois tax payers will see a reduction in their state taxes under the proposed graduated tax plan.
• 65% of Illinois voters favor a graduated tax.   
• Thirty-four states have a graduated income tax and studies show that states with graduated income taxes are more than twice as likely to cut taxes on the middle class than to raise them.
• The graduated income tax rates proposed and approved by the legislature would generate an additional $3.4 billion which will go toward better funding of education, public safety, paying down the pension obligation.  Without those additional funds, we face cuts in funds for public schools and universities, cuts in   revenue sharing with local governments, clean water and air, care for the elderly, programs for the disabled.
• Fitch Ratings, a Wall Street credit rating agency says approval of the graduated income tax referendum on the November ballot will be "critical" to the state's credit outlook.  ""Failure of the graduated income tax proposal would trigger fiscal actions that could exacerbate the state's structural budget challenges and pressure local governments including school districts.  If voters approve the constitutional amendment, Illinois appears to be able to continue recent progress toward structural balance."

It is not a given that a graduated tax will drive the wealthy from Illinois – there is actually no correlation between a state’s tax rate and the likelihood a high income family will leave the state -  states with highly progressive income taxes – such as New York and California -  thrive as centers for elite economic success.