No issue in Illinois' photo-finish primary election separated the Democratic candidates for governor from the Republicans more than the possibility of a state income tax hike. While Democratic Gov. Pat Quinn and Comptroller Dan Hynes argued for higher income taxes, every Republican contender vowed to plug the state's massive budget deficit, somewhere north of $12 billion, by relying only on spending cuts and revenue enhancers that would keep the income tax just as it is.
But Illinois' tax system is neither sustainable nor just, and the health and human services programs that support the most vulnerable of us are at risk.
The nonpartisan Institute on Taxation and Economic Policy ranks Illinois' tax system among the 10 most regressive. According to the Heartland Alliance for Human Needs and Human Rights, Illinois' poorest families pay nearly 13% of their incomes toward state and local taxes, compared with only 5% paid by the state's richest families.
Without quick action, the consequences will be felt by all of us at every income level. All three credit reporting agencies already have downgraded Illinois' debt, leaving only California with a worse credit rating and higher borrowing costs. Soon, we're likely to lose federal matching funds because of the curtailment of programs and services critical to the state's economy.
Last March, Mr. Quinn pressed to raise the state's personal income tax rate to 4.5% from 3% and increase the personal and dependent exemptions to $6,000 from $2,000, to generate about $3 billion per year, according to the Institute on Taxation and Economic Policy. But the governor's plan, which would have helped balance the budget without hitting low-income families the hardest, was summarily rejected by the General Assembly.
While Mr. Quinn has lobbied for a boost in the state's flat income tax, Mr. Hynes has pushed for a graduated income tax, leaving the 3% rate in place for taxpayers earning less than $200,000 but imposing rates from 3.5% to 7.5% on higher incomes, with the highest rate reserved for earners of $1 million or more. His plan, which would require a constitutional amendment, would raise roughly $5.5 billion annually, the Institute on Taxation and Economic Policy reports.
We can attack the state's insolvency and its tax system's inequity with a one-two punch. Let's avoid severe cuts in public services by implementing the tax hike the governor has sought, but just until we amend the state's constitution to permit a graduated income tax. Only then will Illinois' most affluent taxpayers contribute their fair share of the state's revenue and help restore the health of Illinois' economy.
Our March 2010 Lane Report was adapted from a column published in Crain's Chicago Business on February 15, 2010. Reprinted with permission from Crain Communication Inc., Copyright 2010.
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