Lt. Gov. Juliana Stratton warned Thursday that Illinoisans could face an across-the-board income tax hike of at least 20% if voters reject a proposed constitutional amendment to shift the state from a mandated flat-rate tax to a graduated-rate tax based on income.
For weeks, Democratic Gov. J.B. Pritkzer’s administration has cautioned that severe budget cuts could be on the way if voters don’t approve the proposed amendment to overhaul Illinois' income tax system. But Stratton’s threat that all taxpayers, regardless of income, could face a tax hike unless the amendment passes on Nov. 3 appeared to represent a new shift in strategy for the Pritzker administration.
“To adequately address the budget crisis under our current tax system, lawmakers will be forced to consider raising income taxes on all Illinois residents by at least 20% regardless of their level of income,” Stratton said during a virtual rally on behalf of the pro-amendment Vote Yes for Fairness group that marked the start of voting in Illinois.
“We all know that our middle- and lower-income families cannot withstand a 20% tax increase and it will only serve to deepen the dramatic inequities that we already see across the state. It will drive out our residents and it will drive out investment in Illinois,” she said in the rally via Zoom as she traveled to Danville.
A 20% increase would raise the state’s current 4.95 percent flat-rate personal income tax by nearly 1 percentage point to 5.94%. It would raise an estimated $4 billion a year, even more than the projected $3.4 billion that would be generated under a graduated-rate levy enacted if the amendment is ratified, said professor David Merriman, a longtime expert on state finances at the University of Illinois at Chicago.
The highest personal rate in the history of the state’s income tax, which dates back to 1969, was 5% from 2011 through 2014.
Stratton urged voter approval of the amendment, which supporters have dubbed the “fair tax.”
“Not only would the fair tax allow the fiscal environment in Illinois to stabilize, it will have a positive ripple effect, allowing us to better and more adequately fund our schools and other important programs along with lowering property taxes,” Stratton said.
The graduated-rate tax amendment is the singular agenda item of Pritzker, the billionaire first-term Democratic governor, who has contributed more than $56.5 million to its passage. But the proposal is meeting with extensive opposition from wealthy business interests and Republicans. Ken Griffin, the billionaire founder of the Citadel hedge fund and investment firm has donated $20 million to the opposition.
Pritzker and supporters contend that 97% of Illinois taxpayers, those making less than $250,000, would pay at least the same or less than they currently pay under a law approved if the amendment is ratified. The proposed amendment, which tops the Nov. 3 ballot, would raise about $1.2 billion if adopted for the last half of the state’s budget year starting in January and more than $3 billion on an annual basis.
Proponents said the amendment is needed to stop lower income wage earners from paying the same tax rate as the wealthy, increasing current income inequity. Opponents contend it would hurt those small businesses which pay through the personal income tax rate, cost jobs and exacerbate a decline in the state’s population.
Opponents of the proposal seized on Stratton’s tax hike warning.
“If you need more proof Springfield has too much power and can’t be trusted, look no further than telling voters to support a tax hike amendment or politicians will continue to raise them for you,” said Lissa Druss, spokeswoman for the Coalition to Stop the Proposed Tax hike.
“It’s clear there’s only three words the Springfield politicians understand: Raising your taxes,” she said.
Pritzker first surfaced the possibility of a sizable across-the-board tax hike as an alternative only months after taking office last year in introducing his original schedule of graduated rates. In March 2019 he warned of either a 15% across-the-board spending cut or an increase in the flat income tax rate to at least 5.95%.
While lawmakers have known an alternative to the amendment was a potential across-the-board hike in the flat tax, Stratton’s warning was a departure from administration warnings of massive budget cuts, including to critical social services, if it was not adopted.
Earlier this month, Pritzker noted that the state’s current budget was heavily dependent upon federal aid and borrowing and the need for a federal coronavirus relief package to aid states which has been stalled in Congress. Pritzker asked the heads of state agencies to prepare for 5% cuts to budgets for this year and 10% cuts next year.
Merriman said given the depths of Illinois' fiscal problems, exacerbated by coronavirus restrictions, “it’s very hard to see cuts that would make a big difference.”
“I’m not saying there’s nothing you can cut,” he said, but cited large budget areas such as education, healthcare for the poor and pension funding as unpopular targets for sizable reductions — with pensions already massively underfunded.
The virtual rally of proponents represented an example of the new campaign style that has taken the place of crowded promotional gatherings in the pandemic era. Several also sought to connect the issue of supporting the amendment to those most affected by issues surrounding COVID-19.
“The current tax system places the burden on the communities that are already struggling. That’s unfair — the same communities that have been disproportionately impacted by the pandemic with deaths, with COVID cases, unemployment and of course the outcomes of not having access to quality and affordable health care,” U.S. Rep. Jesus “Chuy” Garcia, a Chicago Democrat, said.
Bob Reiter, president of the Chicago Federation of Labor, sought to link the issue of the amendment to the pandemic.
“Now more than ever, working people need support. The COVID-19 pandemic has threatened the lives and livelihoods of countless workers while those at the very top continue to make record profits,” he said.
Noting the effects of the proposed amendment and its rate structure would shift the tax burden to the more affluent, Reiter said, “I’ve got to tell you, if we were in front of a big crowd of people and I asked, ‘How many people out there were pulling down more than $250,000 a year?’ there wouldn’t be many hands.”
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