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Speaking to reporters after a speech in Chicago on Dec. 4, Gov. Bruce Rauner predicted a re-election victory in next year’s gubernatorial race and warned of dire tax consequences if any of the three main Democratic candidates for the post win.
"You know what will happen? We will get a massive income tax hike. The candidates controlled by (House Speaker Michael) Madigan, all of them have said, ‘The answer to our problems is a massive income tax hike,’ " Rauner said, referring to Democratic candidates Daniel Biss, Chris Kennedy and JB Pritzker.
All three have stated they support replacing Illinois’ flat-rate income tax with a system in which those with higher incomes pay higher rates.
Rauner went on to list examples of other states — New Jersey, New York, Minnesota and California — where people earning $40,000 a year pay more in state income tax than the 4.95 percent rate now applied to all Illinois taxpayers.
"They will sock the middle class with a tax hike that Madigan and his puppets want and it will destroy Illinois," Rauner said, noting that the progressive tax movement would be deceptively labeled as a "tax the rich" effort.
Rauner’s statement contained a generous dollop of campaign vitriol — the Madigan-as-puppet-master theme is a running theme for Rauner — but it also brings up what is sure to be another key issue in the governor’s race. Would a Democratic victory for governor next year bring about a graduated-rate income tax for Illinois? And would that be tantamount to a "massive income tax hike?"
Rauner’s statement implies a Democratic governor could muscle through a change that would replace Illinois’ current flat-rate income tax system with a multi-rate system. That overlooks the fact that the single-rate income tax is enshrined in the Illinois Constitution of 1970, establishing a high hurdle for enacting any change.
"A tax on or measured by income shall be at a non-graduated rate," begins Article IX, Section 3 of the constitution.
To impose a progressive tax system lawmakers would have to amend the constitution. That requires approval of three-fifths majorities in both the Illinois House and Senate to put the issue on a general election ballot. Then voters must approve the amendment by "either three-fifths of those voting on the question or a majority of those voting in
the election," according to Article XIV, Section 2 of the constitution.
From 2013 to 2017, Democrats held three-fifths majorities in both the House and Senate yet still could not muster votes to back ballot referendums on a limited graduated income tax plan to impose higher rates on the very rich.
Since then, Democrats have lost their three-fifths margin in the House, though they control the chamber. In theory that could change in the next election, but to push through a tax referendum in the House before then would require a handful of Republican votes. And that’s not likely to happen.
The governor, incidentally, is irrelevant in this process. There is no veto power over constitutional amendments. If approved by voters, they become law.
Under the constitution, the only path to get a tax referendum before voters is through the Legislature. Citizen-led petition drives for such a purpose are not allowed.
Rauner also equates a graduated tax system to a "massive tax increase" on the middle class.
But he tries to make the point with cherry-picked examples.
A single filer earning $40,000 annually in California pays 6 percent. It’s 5.525 percent in New Jersey, 6.45 percent in New York and 7.05 percent in Minnesota, according to 2017 tax data compiled by The Tax Foundation. Those tax rates are all higher than the 4.95 percent now imposed on Illinois taxpayers.
But there are other graduated income tax states Rauner failed to cite where the numbers would undermine his premise.
Individuals earning $40,000 a year pay 3.36 percent under Arizona’s graduated-rate system. In Maryland, those who earn between $3,000 and $100,000 pay 4.75 percent. North Dakota taxes $40,000 at 2.04 percent, and its highest bracket imposes only a 2.9 percent rates on incomes over $416,700. Ohio’s top rate, 4.997 percent, applies to income of more than $210,600. Those in Ohio earning $40,000 pay 2.969 percent. Even Connecticut’s 5-percent tax on $40,000 is very close to Illinois’ 4.95 percent. (Connecticut’s top bracket, 6.99 percent, kicks in at $500,000 for individual filers.)
While Democratic candidates say they support a graduated-rate system, they have been talking in the abstract and none have proposed specific rates. Given the difficulty of amending the constitution, lawmakers would be loath to enshrine tax and income brackets into it, and any rate-setting would fall to the legislature after a constitutional change.
The realpolitik of that hasn’t stopped Rauner from predicting how it would all play out. "They say, ‘Let’s tax the rich,’" Rauner said in the same Dec. 4 press conference. "Well, first of all, you watch business owners flood out of this state when that happens and our unemployment rate is going to go through the roof."
The last big push for a comprehensive progressive tax amendment came during the 2013-14 legislative session and it died without receiving a vote in either the House or Senate. The proposal contained no income or tax bracket figures.
In 2012, the Center for Tax and Budget Accountability, a liberal-leaning fiscal watchdog, created a progressive tax model in which taxpayers with incomes of less than $100,000 — 94 percent of those in Illinois — would pay the same or less than the 5 percent tax rate in effect at that time. The model nonetheless projected a 5.8 percent increase in revenue from the income tax because of higher rates on the wealthiest Illinoisans.
CTBA Budget Director Bobby Otter said that model would likely hold up today because the current Illinois tax rate, 4.95 percent, is close to that used to make the projection.
Raising taxes is never easy, but procedurally it is easier to change rates than change the constitution. Indeed, the Illinois tax rate has bounced around in recent years, from 5 percent in 2010 to 3.75 percent in 2015 to 4.95 percent starting last summer.
When we contacted Rauner’s campaign to ask whether the Republican believed a Democratic successor would try to raise the latest rate, spokesman Justin Giorgio referred us to a recent column in The News-Gazette of Champaign-Urbana.
That column focused on reporting by Crain’s Chicago business about a Nov. 20 visit by Pritzker to its editorial board. During that visit, the Democrat mentioned a progressive income tax and potentially new tax revenue for the state if it legalized marijuana. Pritzker was not quoted as directly calling for a tax hike:
Some will come from amending the Illinois Constitution to allow a progressive income tax, something that would require a referendum vote, likely in 2020. Pritzker said he could not estimate how much that would pull in, but he projected the state would net another $300 million to $700 million by legalizing and taxing marijuana.
Would that be enough to meet all the needs while (economic) growth accelerates?
"No. But it depends on how you prioritize," Pritzker replied.
After the meeting, a Pritzker campaign spokeswoman issued a statement to clarify that "J.B. does not believe we should raise taxes on middle-class families, period."
In sum, Pritzker backs a graduated tax amendment, thinks it will reap more revenue for the state and acknowledges that still may not be sufficient to meet needs. But his spokeswoman suggests only the wealthy should be asked to pay more. (The article cited by the Rauner campaign discussed only Pritzker, though Biss and Kennedy have endorsed the progressive tax concept.)
Rauner said Democratic gubernatorial "candidates controlled by Madigan, all of them have said, ‘The answer to our problems is a massive income tax hike.'"
Rauner’s "controlled by Madigan" tag is aimed at the three highest-profile candidates, Pritzker, Kennedy and Biss, and suggests without proof they are all acting at the behest of the powerful House Speaker. All three have advocated for a change from a flat income tax rate to a graduated-rate system in which tax rates are higher for those with higher incomes.
Despite Rauner’s examples, a progressive income tax system does not necessarily mean a tax increase for the middle class. And there is no evidence that anyone in Illinois politics has a blueprint for income and tax brackets under a potential Illinois system. The closest such blueprint, from 2012, had the vast majority of voters paying the same or lower taxes.
Nor is that decision up to the governor. It would take three-fifths of the General Assembly and a majority of voters to bring a progressive tax to reality. Recent history does not point favorably to this happening without significant Democratic gains in the Legislature.
Pritzker was squishy when discussing immediate revenue needs with Crain’s, but Rauner cites the Crain’s article as Pritzker’s solid endorsement of a "massive tax increase." We rate Rauner’s statement Mostly False.
State Individual Income Tax Rates and Brackets for 2017, The Tax Foundation, accessed Dec. 6, 2017
How high are property taxes in your state?, The Tax Foundation, accessed Dec. 6, 2017
Pritzker says state needs progressive tax structure, State Journal-Register, April 17, 2017; accessed Dec. 6, 2017
Chris Kennedy for Illinois website, Tax Fairness, accessed Dec. 6, 2016
Biss for Illinois website, The Economy, accessed Dec. 6, 2017
The Case for Creating a Graduated Income Tax in Illinois, Center for Tax and Budget Accountability, Feb. 1, 2012; accessed Dec. 6, 2017
Déjà vote: Madigan millionaire tax fails once again, Chicago Sun-Times, April 21, 2016; accessed Dec. 8, 2017
Email exchange, Bobby Otter, budget director, Center for Tax and Budget Accountability, Dec. 7, 2017
Jim Dey: Pritzker faces tough tax, spending issues, The News-Gazette, Nov. 26, 2017; accessed Dec. 11, 2017
Pritzker: 'There really is no Illinois Democratic Party', Crain’s Chicago Business, Nov. 20, 2017; accessed Dec. 11, 2017
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