Toward the end of this year’s legislative session, two bills were introduced - one in the Illinois House and one in the Senate - that were largely overlooked. The bills, SJRCA 40 and HJRCA 33, seek to change the Illinois Constitution to impose a graduated income tax on both personal and corporate income.
More specifically, they seek to put the issue on the ballot in November 2014 to let the voters decide. One of the resolutions would need to be passed by super majorities in both houses, either during this fall’s veto session or next year’s legislative session. The governor’s signature would not be required.
While the bills did not receive the limelight of the press, they did not escape the scrutiny of Illinois Republicans, who quickly and vehemently opposed them.
“We view this as a situation where the state of Illinois has already more money from taxpayers -literally billions of dollars more - than they ever have had,” said Sen. Matt Murphy, R-Palatine. “And that coincides with still having a huge debt and having an unemployment rate that’s the second highest in the country. We don’t see another tax increase as a way to solve Illinois’ problems from a job standpoint or from a budget standpoint,” he added.
Murphy says Republicans are vowing to do all they can to defeat the measure in the legislature, which comes as no surprise to Sen. Don Harmon, D-Oak Park, the bill’s sponsor.
“I think everyone at this point is playing the roles that they’re expected to play,” Harmon said. “There’s been a lot of support from the quarters from which you would expect support, and there has been vocalized opposition from the quarters where you would expect vocal opposition. I expected them (Republicans) to be against it. I confess I didn’t expect them to be against it this loud or this early. But I suspect that it is a more appealing proposition today than it might have been in the past, and they are recognizing that they need to get out in front of it if they want to oppose it.”
Harmon says a graduated income tax is simply a matter of fairness. People who have lower income levels pay lower tax rates, and people with higher income levels pay higher income tax rates. While a rate structure has not yet been determined and is not included in the bill, Harmon predicts most Illinoisans will pay less tax under a graduated tax structure than under the current flat tax.
But Murphy doesn’t buy it. He says that of the states that have a progressive income tax, people earning $50,000 a year or more pay a higher tax than they would in Illinois in January 2015 if the rate goes back down.
“It’s a Trojan Horse to raise taxes on the middle class,” Murphy said. “They’ll sell it as being a tax on the rich and the businesses, but the math doesn’t work unless they hit the middle class - and that has been the example in other states that have done this. I would love to see how low they have to go in terms of household income for people to pay less in taxes and still be able to raise more money.”
Murphy says Illinois is already a high tax state when you combine the state and local tax burden and that raising taxes on the higher income “job creators” will drive small business owners out of business or out of the state.
The Center for Tax and Budget Accountability, which bills itself as a bipartisan research and advocacy think tank that promotes fair, efficient and progressive tax, spending and economic policies, has long advocated for a graduated income tax. According to its February 2012 report, The Case for Creating a Graduated Income Tax in Illinois, Illinois is one of the most unfair tax states. The reliance on a flat income tax, according to the CTBA, has hamstrung the state’s ability to provide services and hobbled its moribund economy.
In addition, according to the report, a graduated income tax structure would cut overall state income tax burden for 94 percent of all taxpayers, raise at least $2.4 billion annually in new revenue and stimulate the growth of at least 36,000 jobs in Illinois’ private sector.
“The idea is to rationalize our current tax code,” said Harmon. “We have a tax code that’s designed for a mid-1900s economy. It does not make sense today. Our neighboring states do it differently. It’s an effort to enact a fair and rational tax.”
Murphy agrees that the Illinois economy is stagnant and unemployment is stuck at an alarmingly high level, but he doesn’t see the flat tax as being the problem. He says a graduated income tax would simply make matters worse.
“You’re looking at an Illinois economy and employers who already have an extremely high overall tax burden,” Murphy said. “And if you make this a more expensive place to do business than it already is, you’re going to see even more jobs leave. Instead of having the second-highest unemployment rate in the country, we’ll have the highest.”
While some might think it appropriate to put the question on the ballot and let the voters decide as the bills aim to do, Murphy says that he fears public sector unions and others who hope to feed at the trough will come out to the polls in force and overwhelm ordinary citizens and small-business owners. His aim, therefore, is to keep it from ever getting to the ballot, he says.
“My hope is that there will be enough Democrats in the Senate who will realize that it’s a problem,” said Murphy. “But if that doesn’t happen, it will take every single Democrat in the House of Representatives to support it because I do not believe that there will be a single Republican in the House of Representatives that will vote for it. If every Democrat in the House of Representatives wants to vote for this and make that their policy prescription with the people, I guess I will be surprised. I think we have a decent shot at stopping this thing in the House. And we’re going to do everything we can to do so in the Senate, too. If by some measure they get it on the ballot,” he added, “then we’re going to fight like crazy for the hearts, souls and minds of the people of this state because this is a dagger pointed right at the middle class and their ability to succeed and pay their bills.”