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.