Graduated Income Tax
Released February 16, 2021
Without new revenue available from the proposed Fair Tax, short-term borrowing, Federal Aid, and cutting some expenditures has allowed Illinois to hold on during the current fiscal year. But this is a short-term solution, and not a sustainable solution in tackling the long-term fiscal woes of Illinois. In our new short report, “Increasing the Income Tax Rate: One Method for Addressing Illinois’ Long-term Fiscal Problems” CTBA analyzes potential benefits of increasing the income tax rate, while ensuring that any increase in the income tax address the regressivity of a flat rate income tax structure through refundable tax credits.
Released October 21, 2020
In early August, the Illinois Chamber of Commerce issued a press release arguing against ratification of the proposed amendment to the Illinois Constitution that will permit the state to utilize a graduated rate structure for its income tax. According to the Illinois Chamber, such ratification, coupled with implementation of the specific graduated rate structure identified in P.A.101-0008, which is called the “Fair Tax” by proponents, would “somehow” shrink the Illinois economy, and disproportionately harm women and minorities. But the press release based these claims on largely unsubstantiated findings contained in an Executive Summary of the report, “Illinois’ Proposed Graduated Income Tax: Impacting Jobs and the Economy,” which the Illinois Chamber paid the Berkeley Research Group (BRG) to produce.
Unfortunately, the Executive Summary does not provide much in the way of support for the conclusions it reaches, nor does it regularly cite its sources, or even provide insight into the model BRG used to reach its conclusions which is particularly problematic in this instance, given that the main findings contained in the Executive Summary are contrary to prior research on migration, tax burden, and the economy.
CTBA decided to reached out to both the BRG and the Illinois Chamber to request a copy of the full report, however, neither the Illinois Chamber nor BRG was willing to make the full report available to either CTBA or the public. CTBA chose to respond to the BRG Executive Summary released by the Illinois Chamber anyway. To find out more about how, when compared to the body of research conducted by credible sources in the relevant areas, the Key Findings presented in the Executive Summary are revealed to be either inaccurate or misleading, please read CTBA’s new Issue Brief, “Analysis of Berkeley Research Group Graduated Rate Income Tax Impact Report.”
Released October 14, 2020
On November 3, 2020, voters will have the chance to ratify an amendment to the Illinois Constitution which would allow the state to use a graduated rate structure for its income tax. Ratification of this amendment would permit implementation of Public Act 101-0008 (“P.A. 101-0008”) which was signed into law on June 5, 2019. If implemented, this legislation which is frequently referred to as the “Fair Tax” by proponents, would replace the state’s current flat rate income tax with a graduated rate structure that: is tied to ability to pay; in normal economic times would raise around $3.5 billion in new revenue annually; and would effectively help eliminate some of the long-term structural flaws that have consistently made Illinois’ overall tax system one of the most unfair and poorly performing in the nation.
Many of those opposed to the Fair Tax have tried to mislead Illinoisans into voting against ratifying the proposed amendment to the state’s constitution this November, by relying on arguments that have emotional appeal but are not supported by either evidence or the vast body of research. One such specious argument consistently made against the proposed Fair Tax is that the change to a graduated rate income tax structure will cause a mass exodus of middle-income households and millionaires from Illinois.
This claim, however, is exposed for the baseless canard it is when evaluated against the body of research covering the relationship—or as it turns out lack thereof—between tax policy and migration, as well as the relevant data from the Internal Revenue Service (“IRS”), U.S. Census Bureau, and the Illinois Department of Revenue (“IDOR”). People (including millionaires) move for many complicated, interrelated reasons, least of which is because of tax policy.
Released October 1, 2020
On November 3rd, 2020, Illinois voters will have the opportunity to ratify the proposed amendment to the Illinois Constitution that would eliminate the mandate that state income taxes be assessed using only one flat rate.
This is a crucial moment for Illinois since it has historically been, and currently remains, one of the most unfair taxing states in the nation. From a textbook standpoint, an “unfair” tax system is a regressive tax system—that is, one that imposes a greater tax burden on low- and middle-income families than on affluent families, when tax burden is measured as a percentage of income. It is unfair because such a system fails to allocate tax burden in a manner that correlates with ability to pay, thereby worsening the substantial growth in income inequality that has occurred in the private sector over the last four decades. But building fairness into a state tax system is difficult, given that every tax—or fee for that matter—which is available to fund public services provided at the state or local level is regressive except for one: the income tax. The income tax is the only tax that can actually be designed to comport with ability to pay and hence create some tax fairness, because it is the only tax that can be designed to assess higher tax rates on higher levels of income, and lower rates on lower levels of income.
Unfortunately, Article IX, Section 3 of the Illinois Constitution mandates that the state income tax be imposed at one flat rate across all levels of income. Hence, Illinois is constitutionally prohibited from utilizing the income tax to play the essential tax policy role of offsetting the natural regressivity of every other tax and fee imposed at either the state or local level. In fact, Illinois’ inability to build some fairness into its tax system through implementation of a graduated rate income tax has played a major role in driving the ongoing deficits in the state’s General Fund, while also hampering private sector economic growth. The good news is a genuine opportunity for meaningful reform of the Illinois income tax now exists. That is because on June 5, 2019, Governor Pritzker signed Public Act 101-0008 (“P.A. 101-0008”) into law. If implemented, this legislation will create a new, graduated rate income tax structure, frequently referred to as the “Fair Tax” by proponents, to replace the state’s current flat rate income tax.
To learn more about how the Fair Tax not only ties income tax burden to ability to pay, but also raises new revenue in a manner that will effectively help eliminate some of the long-term structural flaws that have consistently made Illinois’ overall tax system one of the most unfair and poorly performing in the nation, please read the new CTBA Report, “Implementing the “Fair Tax” Will Help the Illinois Fiscal System Respond Better to the Modern Economy While Promoting Tax Fairness.”
Press Release: A Graduated Rate Income Tax Would Help Reduce After-Tax Income Inequality in Illinois
Released May 22, 2019
The Center for Tax and Budget Accountability (CTBA) released a report, How a Graduated Rate Income Tax Would Help Reduce After-Tax Income Inequality in Illinois, which shows that the implementation of a graduated rate income tax can reduce the regressivity of Illinois’ state and local tax system
Released May 22, 2019
Since 1979, the nation has seen a rapid and significant increase in income inequality between low- and middle-income Americans on the one hand, and the wealthiest one percent on the other.
Cutting Taxes for the Middle Class and Shrinking the Deficit: Moving to a Graduated State Income Tax in Illinois
Released April 30, 2018
This report makes the case for a graduated rate state income tax in Illinois, and illustrates two possible rate structures that would accomplish each of three major objectives:
Released April 7, 2014
Policy leaders across Illinois have identified supporting small businesses and entrepreneurship as key to reviving the state’s sluggish economy. And no wonder, given that over 99 percent of all businesses in Illinois are “small business” as defined by the Small Business Administration. This Report, identifies best practices and policy initiatives decision makers can take to improve the state’s economy and aid small businesses in Illinois.
Released March 28, 2014
Drawing on reports released by Stanford University and the Center on Budget and Policy Priorities, this Issue Brief debunks the myth that if Illinois increased income tax rates on higher incomes there would be a mass exodus of millionaire households out of the state and points out the importance of moving to a fair tax.
Released October 1, 2013
The fiscal problems that have historically plagued Illinois are on full display in the FY2014 General Fund budget passedby the Illinois General Assembly. The state’s accumulated deficit remains significant, and in all likelihood will be at least $8 billion by the end of FY2014. Despite increases for some aspects of the General Fund budget, net spending on services will be $173 million less in FY2014 than in FY2013. Meanwhile, as spending on service delivery continues to decline, the annual cost of debt service continues to grow—specifically the debt owed to the state’s five public pension systems.