A recent contribution to Viewpoints did readers a disservice by describing the proposed Fair Tax as a "moolah grab" [Fair tax or moolah grab? March 26]. This pejorative term completely ignores the fact that:
1) The state's current fiscal situation is dire.
2) The state has experienced a deficit every year for the past 20 years.
3) Regardless of what the Illinois Supreme Court decides, the state will still owe its pension funds $100 billion.
4) Since 1970, the 3% flat tax has failed to generate sufficient revenue to enable the state to fully pay its vendors, much less its pension obligations.
5) 90% of the state's revenue is spent in just four core areas: education (35%), health care (29%), human services (20%) and public safety (6%). Any proposed cut in state expenditures must recognize that Illinois ranks near the bottom nationally in its spending on core services.
Illinois desperately needs a graduated income tax. According to the Center for Tax and Budget Accountability (CTBA) a graduated income tax would cut the overall state income tax for 94% of all taxpayers. In addition, it would raise at least $2.4 billion annually in new revenues. It would accomplish this by shifting the tax burden to affluent taxpayers, e.g. those with annual incomes in excess of $150,000.
According to the CTBA, these taxpayers would pay 4.3% of income instead of the current 2.1%. Joseph Stiegliz, Nobel Prize-winning economist, avers that modestly increasing taxes on the affluent does not materially reduce their spending because of their significant portion of all income growth. Since their spending is a smaller proportion of their income than it is for lower-income taxpayers, Stiegliz says, they have a low marginal propensity to consume.
On the other hand, spending by low- and middle-income families is a much larger proportion of their income and so these folks are said to have a high marginal propensity to consume; they simply do not earn enough to save and invest.
Illinois current tax policy is neither fair to lower- and middle-income taxpayers nor is it designed to sustain state services. Our current tax policy also hurts Illinois' economy by reducing consumer spending by lower- and middle-income families.
In 2015, the temporary income-tax increase will begin to phase out. This will add an additional $2 billion to an already $8 billion deficit. Illinois, however, will still need to fund vital public services as well as pay current and past bills.
Now is the time to act.
Answer Book 2016
To view the full print edition of the Wednesday Journal 2016 Answer Book, please click here.
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