by Lawrence J. McQuillan, PhD
The Center for Tax and Budget Accountability (CTBA) wants Illinois lawmakers to impose a progressive income tax (also called a graduated income tax) on Illinois workers, which would tax personal income at ever-increasing marginal rates. In their push to undermine Illinois’ current flat tax, the CTBA is misrepresenting Adam Smith, the father of economic science.
In a recent CTBA report, it says “Smith championed graduated taxation.” In support, they cite this passage from Smith’s classic 1776 book The Wealth of Nations: “The subjects of every state ought to contribute toward the support of government as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state” (p. 3).
Taxation in “proportion to the revenue” is not a progressive tax; it’s a flat tax where everyone pays the same proportion to the state. If Smith had favored a progressive tax he would have said something like “an ever-larger proportion of revenue” or “monatonically increasing with revenue” instead of proportion. Smith chose his words carefully.
But it’s important to know that even with a flat income tax (as we have in Illinois) the rich pay a larger share of the total tax burden than the poor because their incomes are higher and, thus, they pay more taxes. Currently, Illinoisans with an annual base income more than $1 million pay an average tax 47 times higher than the typical resident. This factoid comes from the CTBA itself!
Not only did Smith not support a progressive income tax, he didn’t support any tax on income, with one important exception. Professor David Friedman, a scholar of Adam Smith’s work, notes that in the Wealth of Nations Smith “successively rejects taxes on income from capital, taxes on wages, and taxes on the income of professionals. The only income he approved of taxing is the income of government officials.”
To advance its political agenda of imposing a progressive income tax on hard-working Illinoisans, the CTBA is misrepresenting Adam Smith in an attempt at legitimacy. This makes one wonder what else the CTBA is misrepresenting about a progressive income tax? Stay tuned.