Opponents spar over income tax structure

Just call it an opening skirmish in what portends to be a protracted conflict.

Mike Billy
Illinois News Network

Just call it an opening skirmish in what portends to be a protracted conflict.

Should Illinois ditch its flat-rate income tax and create a progressive income tax instead?

That was the question debated Tuesday at State Farm’s Government Affairs Roundtable.

On one side was the Center for Tax and Budget Accountability, an organization funded in part by government employee unions. It favors changing the state constitution to create a progressive tax structure.

On the other side was the Illinois Policy Institute, a free-market group. It opposes the change saying it will result in higher taxes for middle-class Illinoisans.

“We believe that for Illinois to become a more prosperous state that not only do we need a graduated income tax to bring in some revenue, we also have to start paying back our unpaid bills and work on paying back our pension debt,” said Jennifer Lozano, a research associate at CTBA.

Ted Dabrowski, vice president of policy at the Illinois Policy Institute, countered that Illinois has a spending problem not a revenue problem. Tax revenues are already at the highest level in the state’s history, he noted.

He added Illinois doesn’t need more revenue, it needs to modernize the way it spends money.

Dabrowski added that he would prefer eliminating the state income tax altogether and adopting some sort of broader sales tax in a revenue neutral solution.

Already a constitutional amendment to create a progressive tax has been introduced by State Rep. Naomi Jakobsson, D-Urbana.

To become law, it must be approved by at least three-fifths of lawmakers in both the House and Senate and then placed on a ballot and approved by the voters.

Lozano said having the tax rate based on income is a better policy, because more revenue is generated from high-income earners.

“Illinois has one of the most regressive income taxes in the United States,” she said.

Dabrowski, on the other hand, said taxing success with higher and higher rates will drive entrepreneurs out of the state and hurt small businesses and job creators.

“We believe that taxing labor is actually a bad thing,” he said. “The more we tax success, the more we tax labor, the more we disincentivize it.”

While both Dabrowski and Lozano agreed that Illinois has a spending problem, Lozano said that Illinois also needs more revenue.

Dabrowski, however, noted that state already hiked taxes by a record 67 percent in 2011 and the politicians failed to meet their promises.

“I don’’t believe the politicians have any right to ask for any more of your money,” he said.

Illinois brought in $33.79 billion in 2012, more than any year in the state’s history.

Chris Mooney, a political science professor at the University of Illinois at Springfield, said that he wasn’t sure the progressive tax would be a big issue this year.

“We’ll have to wait and see,” he said. “There are always some people who want it, but one of the problems is that it has to go to a public ballot so the proponents will really need to sell it.”