Oh, goodness, billionaires might leave.
Sorry, but we worry more about the tens of thousands of middle-class and working-class residents who already are leaving Illinois each year.
What’s driving them away is not higher income taxes, but poorly funded public schools, inconsistently funded public universities, low wages, and a state financial crisis that discourages job-creating businesses from setting up shop or expanding.
No sooner did Gov. J.B. Pritzker on Thursday reveal the specifics of a proposed progressive income tax — what income brackets would be taxed at what rates — than the ideological servants of the country club set warned that folks like our former governor, Bruce Rauner, might pack up their cigar rooms and decamp to Florida.
If you believe them, Illinois is a dog of a state. It has nothing going for it except a relatively low flat income tax.
For our part, we think much more highly of Illinois, beginning with the vibrant city of Chicago. CEOs can’t elbow past each other fast enough to relocate their corporate headquarters here. But the very notion that Illinois will become a tax-happy outlier if it enacts Pritzker’s version of a progressive income tax is nonsense.
Pritzker wants to raise an extra $3.4 billion to pay down the state’s unfunded pension obligations and give a boost to schools and universities. His proposed tax plan, which sets out six income brackets, would lower taxes slightly for a majority of the state’s residents and increase taxes on everybody who earns above $250,000 a year.
Currently, all residents of Illinois are taxed at 4.95 percent. Pritzker’s plan would reduce the tax rate on incomes of $100,000 or less. It would maintain the rate of 4.95 percent on incomes between $100,000 and $250,000. And it would increase the rate on even higher incomes. People pulling in $1 million or more would be taxed at 7.95 percent on every dollar.
View this document on ScribdRepublicans and business groups warn that this would be punishing. But punishing for whom? The current flat tax, which imposes the same tax rate on a cleaning woman as on a hedge fund manager, is pretty punishing, too — for the cleaning woman.
Not for nothing do 34 states and the federal government already use a graduated income tax. It is a matter of basic fairness.
“It’s wrong that I would pay the same tax rate as someone earning $100,000 or, even worse, pay the same tax rate as someone earning $30,000,” said Pritzker, a multibillionaire.
It’s equally alarmist to argue that Illinois will put itself at a competitive disadvantage with other states. Certainly, that will not be true with respect to four of the five border states. Not if the first order of business is to protect and grow the middle class.
In Iowa, anybody who earns more than roughly $72,000 a year — a decidedly middle-class income — pays taxes at a rate of 8.98 percent. That’s a far higher rate than Pritzker is demanding even of billionaires.
View this document on ScribdIn Missouri, the top tax rate, 5.9 percent, kicks in on incomes as low as $9,072. That’s a higher rate than Illinois’ current flat tax rate, and it is much higher than Pritzker’s proposed new rates for middle-class earners.
In Wisconsin, the second highest tax rate, 6.27 percent, kicks in on incomes as low as $22,470. That, again, hits working people harder than anything Pritzker has in mind for Illinois. And Wisconsin’s top rate, 7.65 percent, on incomes of about $250,000 or more, is similar to what Pritzker is calling for in Illinois.
In Kentucky, the top graduated tax rate, 6 percent, also hits the middle class hard, kicking in on incomes as low as $75,000. Under Pritzker’s plan for Illinois, workers earning that kind of money would pay a tax of only 4.9 percent.
Of the five states that share a land border with Illinois, only Indiana has a flat tax, and the rate is definitely low — just 3.32 percent.
As we wrote in a recent editorial, the middle class in the United States is at risk of becoming an endangered species, a trend playing out in Chicago at a particularly alarming rate. And Illinois’ current flat tax aids and abets that trend.
If Illinois must raise more revenue to pay down its debts, beginning with a $134 billion unfunded pension liability, it must do so more fairly.
Who cares if the rich stick around if the middle class disappears?
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