In Springfield, the wheels were set in motion to move Illinois from a flat to a graduated state income tax structure. This should come as no surprise as the marketing for a graduated income tax has been in full swing for months now. Under the jingoistic "Fair Tax" banner, the plan claims only people making above $250,000 would pay more in taxes and 97% would see no income tax increase ... in theory. In practice, it offers neither.
The graduated state income tax plan, as it stands today, would actually result in yearly tax hikes, in perpetuity, on nearly all taxpayers. Not just the top 3% of earners, but every worker, from McDonald's burger flippers to McDonald's CEO, each and every year.
How is that possible?
Inflation. The legislation for a graduated state income tax does not include provisions to index the tax brackets against inflation. This means higher incomes can either bump a taxpayer into the next tax bracket (a phenomenon known as bracket creep) or push more of a taxpayer's income into the highest bracket for which they qualify, even if that higher income is merely keeping pace with inflation. When the legislature gets around to raising tax rates or creating new brackets, which the state could do at any time, it will only exacerbate the problem. No inflation indexing is like having an invisible tax hike every year that politicians don't have to vote on. It just happens naturally.
Think-tanks from the progressive Institute on Taxation and Economic Policy to the conservative Tax Foundation strongly recommend indexing income taxes for inflation to ensure the tax system treats people fairly from year to year. It's sound economic policy that, ironically, is already built into our current single-rate (flat) income tax structure. The majority of states with graduated taxes index their brackets to inflation, making Illinois an outlier, which is, coincidentally, one of the criticisms of our flat income tax. The federal personal income tax has dozens of provisions that are indexed to inflation. Why the state would neglect to provide inflation protection for working families, yet give public sector retirees compounded 3% inflation protection on their tax-exempt pensions, is anyone's guess.
Since we're about 18 months away from a vote, I assume there's time to remedy this and other major flaws in the current graduated tax plan. But unless inflation is completely addressed, citizens should vote a hard No on the graduated tax plan. It's the only fair thing to do.
Answer Book 2019
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