Progressive income tax amendment heading for defeat

Gov. J.B. Pritzker’s push for his “fair tax” is headed for rejection by Illinois voters. State lawmakers now must face the public pension debt driving the state’s fiscal crisis.

After an expensive and hard-fought battle, Illinois voters were rejecting the progressive income tax amendment late Tuesday night. Voters said “no” to the change, 55% to 45% with 97.6% of precincts reporting, according to the Chicago Sun-Times.

The results show just how far public opinion has come on the progressive income tax. What once appeared to be a popular idea lost the support of more than half of Illinois voters.

In March, a poll showed 65% of Illinois voters supported the graduated income tax amendment, according to the Paul Simon Public Policy Institute. That flipped on Election Day to 55% against the tax.

The amendment needed to receive 60% of the votes on the amendment to pass, or 50% of the total number of votes cast in the election.

The campaign in favor of the amendment was expensive and largely funded by Gov. J.B. Pritzker himself. Pritzker donated $58 million to the Vote Yes for Fairness campaign between donations in June and December 2019, and then another $1.5 million on Oct. 28. No other individual or group donated more than $1,500.

A progressive income tax structure would be disastrous for Illinois. It would lead to new taxes on businesses and individuals, driving more people out of Illinois.

Many supporters of the amendment also advocated for expanding progressive income taxes to include retirement income. Illinois Treasurer Michael Frerichs floated the idea at a Des Plaines Chamber of Commerce event in June.

“One thing a progressive tax would do is make clear you can have graduated rates when you are taxing retirement income. And, I think that’s something that’s worth discussion,” Frerichs said, according to the Daily Herald.

Moody’s Investors Service also agreed a progressive income tax made retirement taxes more likely and would do little to solve any of Illinois’ chronic economic problems.

Municipal income taxes were also more likely with a progressive income tax. Illinois cities with beleaguered finances such as Chicago, Peoria and Springfield could create a graduated tax structure with fewer political consequences by declaring that they are raising taxes on the rich. The flat tax structure protects city residents against these kinds of taxes because lawmakers are not able to arbitrarily choose who pays taxes.

Four million taxpayers would also have suffered a marriage penalty under the progressive income tax amendment. By filing jointly, their combined income would push them into a higher tax bracket, costing them $2,500 more in taxes on average.

The amendment also would have remove language preventing double taxation. Currently, the constitution prohibits income from being taxed twice. Lawmakers could use excuses such as a special surcharge for education or public safety to create new income taxes on the same $1 earned.

As businesses struggle with COVID-19 restrictions, the progressive tax rates could have been a death sentence for many Illinois businesses. The corporate income tax rate would have been raised 10%, but small businesses would suffer even more. A tax hike of up to 47% on more than 100,000 small businesses could have forced many to close after a year with severe revenue losses. Illinois’ small businesses are responsible for 60% of the state’s job creation. Jobs would have been lost as businesses closed or fled the state.

Now without the option of easily raising taxes, Illinois leaders have other steps they need to take toward economic stability and taxpayer-friendly reform. The key to fixing Illinois’ financial mess is public pension reform.

The progressive income tax amendment would certainly lead to a tax hike on the middle class without pension reform. Little has been done to slow the growing public pension debt. If Pritzker were to use a progressive income tax to fix the pension problem, Illinois would lose 95,000 jobs and $18 billion of economic activity.

The next constitutional amendment voters should be considering is true pension reform. An amendment that protects pensioners’ already earned benefits and allows for slower growth in future benefit accruals would help the state address its debt while protecting public employees’ retirements. It would also protect taxpayers, and give greater hope for the state’s economic recovery.