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 After
an expensive and hard-fought battle, Illinois voters were rejecting the
progressive income tax amendment late Tuesday night. Voters said “no” to the
change, 55% to 45% with 97.6% of precincts reporting, according to the Chicago
Sun-Times.
The results show just how far public opinion has come on the
progressive income tax. What once appeared to be a popular idea lost the support
of more than half of Illinois voters.
In March, a poll showed 65% of Illinois voters supported the graduated income
tax amendment, according to the Paul Simon Public Policy Institute. That flipped
on Election Day to 55% against the tax.
The amendment needed to receive 60% of the votes on the amendment to pass, or
50% of the total number of votes cast in the election.
The campaign in favor of the amendment was expensive and largely funded by Gov.
J.B. Pritzker himself. Pritzker donated $58 million to the Vote Yes for Fairness
campaign between donations in June and December 2019, and then another $1.5
million on Oct. 28. No other individual or group donated more than $1,500.
A progressive income tax structure would be disastrous for Illinois. It would
lead to new taxes on businesses and individuals, driving more people out of
Illinois.
Many supporters of the amendment also advocated for expanding progressive income
taxes to include retirement income. Illinois Treasurer Michael Frerichs floated
the idea at a Des Plaines Chamber of Commerce event in June.
“One thing a progressive tax would do is make clear you can have graduated rates
when you are taxing retirement income. And, I think that’s something that’s
worth discussion,” Frerichs said, according to the Daily Herald.
Moody’s Investors Service also agreed a progressive income tax made retirement
taxes more likely and would do little to solve any of Illinois’ chronic economic
problems.
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Municipal income taxes were also more likely with a
progressive income tax. Illinois cities with beleaguered finances
such as Chicago, Peoria and Springfield could create a graduated tax
structure with fewer political consequences by declaring that they
are raising taxes on the rich. The flat tax structure protects city
residents against these kinds of taxes because lawmakers are not
able to arbitrarily choose who pays taxes.
Four million taxpayers would also have suffered a
marriage penalty under the progressive income tax amendment. By
filing jointly, their combined income would push them into a higher
tax bracket, costing them $2,500 more in taxes on average.
The amendment also would have remove language preventing double
taxation. Currently, the constitution prohibits income from being
taxed twice. Lawmakers could use excuses such as a special surcharge
for education or public safety to create new income taxes on the
same $1 earned.
As businesses struggle with COVID-19 restrictions, the progressive
tax rates could have been a death sentence for many Illinois
businesses. The corporate income tax rate would have been raised
10%, but small businesses would suffer even more. A tax hike of up
to 47% on more than 100,000 small businesses could have forced many
to close after a year with severe revenue losses. Illinois’ small
businesses are responsible for 60% of the state’s job creation. Jobs
would have been lost as businesses closed or fled the state.
Now without the option of easily raising taxes, Illinois leaders
have other steps they need to take toward economic stability and
taxpayer-friendly reform. The key to fixing Illinois’ financial mess
is public pension reform.
The progressive income tax amendment would certainly lead to a tax
hike on the middle class without pension reform. Little has been
done to slow the growing public pension debt. If Pritzker were to
use a progressive income tax to fix the pension problem, Illinois
would lose 95,000 jobs and $18 billion of economic activity.
The next constitutional amendment voters should be considering is
true pension reform. An amendment that protects pensioners’ already
earned benefits and allows for slower growth in future benefit
accruals would help the state address its debt while protecting
public employees’ retirements. It would also protect taxpayers, and
give greater hope for the state’s economic recovery.
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