Can you be bought off for $1.25?

by Kristina Rasmussen From the start of discussions over the “tax relief” package being discussed by the Illinois General Assembly, I’ve been concerned about the lack of apparent relief for the middle class. Of the various provisions in the bill (SB397), the one clear measure aimed at providing broad-based relief was supposed to be the personal exemption increase: Illinois...

by Kristina Rasmussen

From the start of discussions over the “tax relief” package being discussed by the Illinois General Assembly, I’ve been concerned about the lack of apparent relief for the middle class.

Of the various provisions in the bill (SB397), the one clear measure aimed at providing broad-based relief was supposed to be the personal exemption increase:

• Illinois allows a $2,000 flat exemption for each member of your household, which allows income to be shielded from the 5 percent income tax rate. So a family of four could shield $8,000 of income from the income tax ($2,000 x 4).
• Currently, the personal exemption doesn’t increase each year with with inflation.
• The bill would tie annual increases in the personal exemption amount to an increase in inflation (specifically, the CPI-All Urban Consumers Index).

After taking a closer look at the numbers, I’m dismayed to find this provision provides a disturbing low amount of relief for individuals and families who are reeling from a 67 percent personal income tax increase.

• A new revenue estimate from the General Assembly’s number crunching organization, COGFA, pegs the estimated tax savings for this provision at a measly $15 million in fiscal year 2013.
• Doing a simple back-of-the-envelope calculation and dividing that out by Illinois’s general population, we’re looking at a tax savings of about $1.17 per resident.
• In that same package is a same-year $15 million tax benefit for Sears. Just Sears. Apparently, Sears has the moral equivalent of millions of individual income taxpayers.

But let’s approach the calculations a different direction:

• COGFA estimates the inflation index will average around 2 percent over the next four years.
• At two percent, the personal exemption would increase to $2,040 from $2,000, allowing someone to shield an extra $40 from the income tax.
• But not so fast. The legislative text says that if extra amount isn’t a multiple of $25, it will be rounded down to the nearest multiple of $25.
• In that case, we’re looking a personal exemption of $2,025, allowing someone to shield an extra $25 from the income tax.
• Applying the 5 percent income tax rate to that $25, a taxpayer will rack up a whopping $1.25 in tax relief from the increased personal exemption.
• Compare that $1.25 in savings to the extra $760 an individual taxpayer with $40,000 in income is paying this year due to the tax hike. It’s almost comical. But really, it is tragic.

Why legislators would sign on to this deal — and not demand stronger, broad-based rate reduction that would help everyone — is beyond me.