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 When
they doubled the state gas tax, Illinois lawmakers made sure it would increase
every year with inflation so they’d capture every penny. When they built the
“fair tax,” they left out an inflation adjustment, so each year more and more
Illinoisans will find themselves defined as “rich” by the state and taxed more.
In 20 years, the “rich” will include those now making $167,000.
Gov. J.B. Pritzker is pitching the “fair tax” as a way to fund the state by
taxing wealthy people like him at a higher rate than the average Illinoisan.
Putting aside the fact that raising taxes on the rich alone cannot fund the
spending that Pritzker has promised, much less the pensions the state has
promised to public employees, Pritzker’s “fair tax” rates are designed to hike
taxes on more and more people down the income brackets every year.
As inflation rises each year, the tax brackets remain unchanged. This phenomenon
is known as “bracket creep,” and it means taxes rise on more and more people
year after year as their nominal incomes increase due to inflation.
Pritzker’s proposed rates raise taxes on those making more than $250,000 per
year. If inflation continues at the same average rate in the past 20 years, the
tax hike would hit those paying the equivalent of around $167,000.
In terms of population, that translates to a 154% increase in
the number of Illinoisans who would pay higher taxes, according to the most
recent data from the Internal Revenue Service. And if real wages grew by the
same average rate as they have in the past two decades, the number of
Illinoisans hit would nearly triple. [ to
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To see how this works, look at West Virginia. In
the year 2000, the top marginal state income tax hit those making
over $60,000, according to data from the Tax Foundation. This was
the equivalent of over $90,000 in today’s dollars. That top bracket,
though, has remained unchanged during the past two decades. Because
those income brackets were not pegged to inflation, those top rates
hit more and more West Virginians as their incomes grew into the
brackets.
For this reason, good government groups advocate pegging income tax
brackets to inflation. According to the left-leaning Institute on
Taxation and Economic Policy, or ITEP, these invisible tax hikes
usually fall heavily on low- and middle-income taxpayers. ITEP
recommends indexing taxes to inflation out of basic fairness.
According to the Tax Foundation, most states surveyed in 2019 with
progressive tax schemes indexed their brackets, deductions, or
exemptions for inflation.
States with a flat income tax rate do not need to adjust their rates
for inflation, because the single rate always remains the same,
automatically accounting for inflation, but states with progressive
tax rates need to take inflation into account to avoid unfairly
hitting low- and middle-income taxpayers.
That Pritzker’s progressive tax makes no adjustments for inflation
reveals “fairness” is not its primary purpose.
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