Let’s start with some facts:
• The Illinois constitution requires a flat income tax (all residents pay the same percentage regardless of income);
• Illinois is one of only nine states that has a flat tax; all others have a graduated income tax; as does our federal (IRS) system. Under a graduated schedule, tax rates increase as income increases;
• The Illinois flat tax rate was 3 percent until 2011 when a temporary three-year 67 percent increase raised the flat tax percentage to 5 percent;
• By law, that 5 percent rate will expire Dec. 31 of this year and revert to 3.75 percent;
• Upstate legislators State Sen. Don Harmon, D-Oak Brook, and State Rep. Christian Mitchell, D-Chicago, have introduced legislation that would replace the flat income tax with a graduated rate schedule.
From there, facts are quickly replaced with politically motivated claims and innuendo. Gov. Pat Quinn has stated on numerous occasions that the “temporary” increase should be made permanent. Many Democratic lawmakers have echoed that sentiment, often expanding their comments to forecast financial Armageddon and the Illinois version of a fiscal cliff if tax rates recede to 3.75 percent. On the other side, many Republican legislators advocate allowing the temporary increase to lapse and making yet steeper cuts to state agencies and the services that they provide us. Classic Illinois politics.
But in the chasm of difference between making the temporary 5 percent rate permanent and making further, more drastic cuts in already depleted state funding of roads, corrections, K-12 schools and higher education, the proposal by Harmon and Mitchell of a “Fair Tax” demands a hearing -- and, we believe, a November referendum vote by the citizen-taxpayers of the state.
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The Harmon/Mitchell graduated income tax plan requires two steps; first, the amendment of the state constitution to remove the requirement that the state assess a flat income tax. This necessitates passage in both houses of the legislature with a 60 percent majority before May 4. If accomplished, the measure would be placed on the November ballot where all Illinois voters would have the chance to weigh in on how income tax is assessed. We believe taxpayers deserve that right.
The second step required involves the percentages themselves. Their bills state that all Illinois households would pay 2.9 percent on their first $12,500 of income; 4.9 percent on income between $12,501 and $180,000 and 6.9 percent on income above $180,000. They claim that 94 percent of taxpayers would pay less than the 5 percent they’re currently paying. That sounds about right because the graduated rate under their proposal would not exceed 5 percent until household income rises above $205,000.
And lest you think their proposal to be wildly innovative and a departure from the norm, remember, 41 states and the federal government already use a graduated income tax; most with far more complicated formulas and many, many more income brackets.
We see three options to the Illinois income tax dilemma.
First, we could allow the 5 percent rate to lapse and revert to 3.75 percent. That “solution” is untenable. Southern Illinois has already been hurt by highway and corrections cuts and another double-digit decrease in funding for SIU and other state colleges and universities will begin (or continue) to cause irreparable damage.
Second, we could make the 5 percent flat rate permanent. While sparing us more draconian cuts to education, highways and all other important state services, the extension of a flat tax at any rate is regressive at its core. Those making less -- and with average household income in Southern Illinois under $40,000 that includes most of us -- end up paying a higher effective tax rate than those making more.
The third option -- and the best option -- is a graduated state income tax. Sen. Harmon and Rep. Mitchell have started the ball rolling toward giving all of us the chance to amend an outdated section of the state constitution and allow a graduated -- and far fairer -- income tax.
We urge you to contact your state legislator this week and ask them to vote to amend the constitution and give you a voice this November to do the same.