FAIR TAX 'IS NOT COMMUNISM, IT'S MATH;' IT BRINGS REVENUE TO FIX STATE'S WOES

by Suzanne Hanney

Following a Zoom meeting on the November referendum for a progressive tax led by Chicago tax expert Ralph Martire, a LaGrange woman developed this elevator speech for friends: “In the past few months, we’ve seen a lot of inequities revealed in our society, and the flat tax leads to inequities because it puts the burden on low- and middle-income families.”

Illinois currently has a flat tax of 4.95 percent, but the referendum would amend the Illinois Constitution to replace it with a graduated tax according to income, just like federal income tax. Under the proposal:

• people making $100,001-$250,000 annually would continue paying 4.95 percent

• those making $10,001-$100,000 would drop to 4.9 percent

• people earning less than $10,000 would pay just 4.75 percent.

Only 3 percent of Illinoisans would see a tax increase. The rate would go up to 7.75 percent only when someone reaches income of $250,001, and it would hit a top rate of 7.99 at $750,001. It is also projected to bring $3 billion new revenue for the Illinois budget.

But another participant in the Zoom meeting sponsored by the League of Women Voters/Unitarian Universality Advocacy Network of Illinois (UUAMI) asked, “Why does Illinois tax anyone who makes less than $10,000 a year?”

“Because the state is too broke,” to eliminate taxes on them, answered Martire. He is executive director of the Center for Tax and Budget Accountability and Arthur Rubloff professor of public policy and public administration at Roosevelt University.

Putting politics aside, the argument about the progressive tax – also known as the “fair tax” – comes down to “revenue” and “regressiveness.”

The flat tax was a political compromise to appease conservative Downstaters who didn’t want an income tax at all. Since its inception during the Illinois Constitutional Convention of 1970, the flat tax has never raised enough revenue to eliminate the state’s structural deficit, Martire said. Illinois spends more than it takes in.

Public officials are left with two unpopular alternatives: raise taxes or cut these services. They opted instead to hide the problem, Martire said, by deferring money from pension funding to pay the other bills, which has led to the current budget deficit.

They also deferred the state’s obligation to fund K-12 education to local property taxes, which is why these taxes are so high. Across the U.S., states pay an average of 47 percent toward education, but Illinois pays just 24 percent of this cost. Local property taxes account for 67 percent of education funding in Illinois (but only 44 percent nationally). Overreliance on local property taxes for education funding creates inequities between school districts across the state: between Harvey and New Trier, for example.

With the flat tax, everyone pays the same rate of 4.95 percent. But the flat tax is regressive because it is harder for a low-income person to pay than a millionaire. The progressive income tax, on the other hand, offsets all other state and local taxes, which are also harder on low-income people.

For example, Illinoisans making less than $21,800 a year pay 14.4 percent of their incomes in combined state and local taxes, while those with annual income of $537,400+ pay only 7.4 percent of their income, said Brandon Marks, Fair Tax state organizer with Chicago Coalition for the Homeless (CCH), quoting the Institute on Taxation and Economic Policy.

“For somebody who’s making less than $10,000, you might be talking about the difference between paying your electric bill or all your rent, or medicine for your child,” said Tracy, a formerly homeless, grassroots organizer with CCH, regarding the flat tax. “For someone making $250,000 a year, they’re talking about luxury wants, but I am talking about being able to provide food, shelter, clothing. In an ideal world I would want everyone to have the basic necessities and beyond that it’s the icing on the cake. But we all need the cake. For me it would cut into my needs, not my wants, it’s not fair. For someone making minimum wage, it’s still not affordable. We need as much of our paycheck as possible.”

The flat tax is also regressive because it doesn’t capitalize on income growth. Between 1979 and 2017, IRS data show a 254 percent average income increase among the top 1 percent of Illinoisans (from $411,000 to $1.4 million annually), while average income for bottom 99 percent only went from $51,000 to $61,000, Martire said.

“Tax policy has to redistribute money from areas of wealth to areas of need or the system won’t work. This isn’t communism, it’s math. You cannot tax lowincome people to fund services in poor communities. They don’t have the money. “

Without a growth in revenue, Illinois spent less in Fiscal Year 2021 than it did in FY2000 under Gov. George Ryan in these areas:

• Higher education is down nearly 49 percent, from $3.79 billion to $1.85 billion

• Health care funding is down 18 percent, from $10 billion to $8.17 billion

• Human services is down 14.68 percent, from $8.1 billion to $6.91 billion

A Zoom audience member quoted the evangelist Luke: “to whom more is given, more is expected.”

But Martire cited Adam Smith in “The Wealth of Nations” – published in 1776. “ ‘The subject of every state ought to contribute toward the support of the government as nearly as possible in proportion to their respective abilities: that is, in proportion to the revenue which they respectively enjoy under the protection of the state.’ Who better to turn to?” he said enthusiastically. “America and capitalism, born together. It was meant to be.”

The progressive tax rate tops out at 7.99 and annual income of $750,000, which compares favorably, he said, with neighboring states:

• Iowa’s 8.53 percent rate on income above $71,910

• Wisconsin’s 7.65 on $258,950+ income

• Minnesota’s 9.85 on $163,890+ income

Martire doesn’t buy the argument that higher taxes will drive down the population. For one thing, since 1925, Illinois has had net outmigration every year except one: 2011, the first year of a temporary tax increase. Second, a greater percentage of people from Indiana and Wisconsin moved into Illinois during the temporary tax increase than vice versa – and to Cook and collar counties, which have the highest local taxes. Other factors are more important, whether family ties, weather or where people find a job, he said.

He also debunks the idea that the November referendum will give the state any legal authority to tax retirement income. “That’s a lie put out by the right wing.”

The moderator of the La Grange League of Women Voters/UUAMI program ended it with her own elevator speech: “We need to be able to show up [at the polls] for the 27% of Illinoisans making less than $10,000 and in desperate need of some kind of equity to change their situations. It would allow us to be a compassionate state and grow business and wealth in so many ways, to begin living into the values that we have.”