We need a state graduated income tax

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Al Popowits

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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 percent of all taxpayers, i.e. those with annual incomes under $150,000.

In addition, it would raise at least $2.4 billion annually in new revenue by shifting the tax burden to affluent taxpayers. The additional $2.4 billion would help eliminate the ongoing structural deficit in the state's General Fund. Structural deficits prevent the state from making investments in infrastructure, transit, education, etc. that are essential for Illinois to remain competitive in a global economy. The additional revenue would also stimulate the growth of at least 36,000 jobs in the state's private sector through enhanced public and consumer spending.

Despite this shift, a millionaire's effective tax rate (what he would actually pay) would be just 4.3 percent of income (currently Illinois millionaires pay an effective state income tax rate of 2.1 percent, according to CTBA). According to Joseph Stiglitz, Nobel Prize-winning economist, modestly increasing taxes on affluent folks does not materially reduce their spending — the reason being that affluent families enjoy such a significant portion of all income growth that they have a very low marginal propensity to consume (whereas low- and middle-income families have a very high marginal propensity to consume because they do not earn enough income to save).

There is also evidence that imposing high marginal state income tax rates on the wealthy does not impede state economic growth over the long term. The Institute on Taxation and Economic Policy (ITEP) compared nine states with the highest marginal individual income tax rates with nine states with no individual income tax in three core economic indicators, i.e. per capita real gross state product growth, real median income growth, and average annual unemployment rate. The high individual income states were California, Hawaii, Maine, Maryland, New Jersey, New York, Ohio, Oregon and Vermont. The states without a broad-based individual income tax were Alaska, Florida, Nevada, New Hampshire, South Carolina, Tennessee, Texas, Washington, and Wyoming. Between 2001 and 2010 the high individual income tax states realized greater growth in real per capita gross state product than their non-tax peers (10.1 percent to 8.7 percent); significantly lower loss in real median household income (a decline of 0.7 percent to 3.5 percent ); and an identical average annual unemployment rate of 5.7 percent .

Illinois' current tax policy is neither fair to taxpayers nor designed to sustain service levels. It also reduces consumer spending by low- and middle-income families which hurts Illinois' economy.

With a graduated tax structure, Illinois can:

1) create a fairer tax system,

2) raise revenue to pay the state's bills,

3) stimulate the economy, and

4) fund vital public services.

In 2015, the temporary income tax increase will begin being phased out. However, Illinois will still need to fund necessary public services as well as pay current and past bills. Now is the time to act.

Al Popowits is a resident of River Forest.

Reader Comments

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Mr. Borderman from Oak Park   

Posted: August 8th, 2012 5:20 PM

I have no problem with allowing the rich to pay no taxes at all. There's just one little catch: since they won't be contributing to things like infrastructure, national defense, etc., they will need to pay users fees for access to tax payer funded facilities and services: - Police (a charge every time they need help) - Fire Department - same - Roads - tolls for driving anywhere - Sewers and other municipal services: special fees. - Defense: a child must serve in a war zone, etc.


Posted: July 29th, 2012 3:53 PM

@Observer. FWIW, I absolutely agree with your comments on this page: http://www.oakpark.com/News/Articles/07-24-2012/Stop_whining_about_Oak_Park's_taxes. See, we don't have to be "sad" about all of our posts! Or do you disagree with my comment on the other page, too?


Posted: July 29th, 2012 3:42 PM

@Observer. You wrote "it is a sad state when the truly rich pay less in taxes, as a percentage than the middle class and poor..." Well, it "saddens" me that I can't figure out what you are talking about?!? I provide statistics and links that contest your statement and you accuse me of being "selfish" and not "concerned about the less fortunate in society." How did you arrive at this ridiculous conclusion?!? Are you a "hater" for people of different opinions or not reading my links? Which is it?


Posted: July 29th, 2012 1:14 PM

@Unfortunately, it is a sad state when the truly rich pay less in taxes, as a percentage than the middle class and poor, just look at Romney's tax return. It still saddens me that people like you are so selfish and concerned about a few extra percentage points in taxes and less concerned about the less fortunate in our society. People like you who are this selfish will be the downfall of this great nation. And that is unfortunate.


Posted: July 28th, 2012 8:12 PM

@Observer - Alright, I'll make another effort on your behalf. What if I told you that the top 1% earned 17% of national income - and paid 37% of income taxes? How about that those in the top 10% (AGI of $112K per year) earned 43%, but paid 70%. http://www.usnews.com/debate-club/do-the-rich-pay-their-fair-share-in-taxes/claim-that-rich-dont-pay-enough-based-on-perception-not-fact. Satisfied? What more do you want? Please read and understand - your entire premise - and many others - is mistaken!


Posted: July 28th, 2012 5:29 PM

A flat rate for everyone is not fair, contrary to your statement and belief. Your attitude is a sad commentary on the state of this nation where people like you are so selfish that they are more interested in saving a few percentage points on your income taxes than the health and wellbeing of your fellow citizens that are less fortunate. My guess is that you have never faced the difficult decision of what basic necessity had to be forfeited so that you could survive. Hopefully, you never will.


Posted: July 28th, 2012 5:07 PM

Pt.2. @Observer. Rockefeller made most of his money when there was no federal income tax. NONE. Now, what about that "90%"? C'mon, do you really think that people would happily/willingly bother making money if 90% went to income taxes? This should help you to understand the reality: http://almostclassical.blogspot.com/2011/03/90-tax-rate-myth.html. And why were so many US jobs created after WW 2? Simple, because most of the developed world, except for US, was destroyed and/or broke. Due to WW 2!


Posted: July 28th, 2012 4:55 PM

Pt. 1.@Observer. I was only replying to your 1:27 comment below. You wrote "someone making $20,000 per year should pay a lower tax rate than someone making $2 million..." I then replied that they already do pay a MUCH lower rate. You then wrote "A great society is based on everyone having a level playing field." Well, IL does have that "level playing field" - our tax rate is a "level" 5%. For everyone. Our Constitution/Declaration has no mention of "fairness and justice" - it's not a "right."


Posted: July 28th, 2012 4:23 PM

@Unfortunately, that $900 may be 1 month rent. $100,000 means you don't buy your Tesla. You can call it class warfare, but it is really about fairness and justice. The Rockefeller and McArthur made their billions (when adjusted for inflation) when tax rates where far higher than they ever were. Also, keep in mind that after WWII there were some effective tax rates of 90%. That did not stop people from creating jobs.

Dan in Oak Park  

Posted: July 27th, 2012 5:25 PM

Do not forget that higher taxes in IL will cause businesses and people to relocate to a low tax state and hurt our state economy. Our state tax rates need to be competitive with other states. Most of the arguments presented are based on a national tax system.


Posted: July 27th, 2012 3:56 PM

@Observer. A single person earning $20,000 in 2012 will have a effective federal tax rate of 5%. A married couple would have a rate of 0%. This assumes no children. If they had any, they'd actually receive money back from the Feds. In IL it's different. The single person would pay $900 in taxes and the person earning $2M would pay $100,000. IMO, we shouldn't be a country that penalizes hard work and success. "Class Warfare" has historically always been evil and violent.

Spare a dollar from Oak Park  

Posted: July 27th, 2012 2:47 PM

Since Oak Park is all progressive and all, can you some of you Richie Rich's pay my parking pass for me? I'm spending over $1500 bucks a year for my wife and me to park our dang cars.


Posted: July 27th, 2012 1:27 PM

The United States is the most unequal industrialized country in the world. The reason someone making $20,000 a year should pay a lower tax rate than someone making $2 million is simple; the person making $20,000 has a much more difficult time paying for the necessities of life while the person making $2 million per year does not even need to think about life's basic needs, such as food, shelter, and clothing. A great society is based on everyone having a level playing field.


Posted: July 27th, 2012 12:07 PM

Observer, why is it unfair? Those in the bottom 10% pay the same to go to the movies as a millionaire. They pay the same for a happy meal. Should the bottom 10% get lower prices on everything? EVERYONE should have to pay something so they have a vested interest in ensuring government is run efficiently. I don't care if it is just $20. Life is not fair and never will be.


Posted: July 27th, 2012 11:48 AM

@Observer - the success of our country had little to do with our income tax rate. The success of our country had to do with (1) business advantages resulting from WWII, (2) dollar hegemony, (3) demographics, and (4) a culture valuing education, innovation and success. Today, the world is a much more competitive place, we've lose the dollar hegemony, our demographics have become a burden rather than an advantage, and unfortunately, our values have swung away from an achievement-based culture.


Posted: July 27th, 2012 11:45 AM

Yeah, cause the people who make more in this state don't pay their fair share! Hasn't Illinois done enough to undermine its competitiveness as a place to run a business and raise a family?


Posted: July 27th, 2012 11:08 AM

A graduated income tax is only fair and just. It is completely unfair and unjust to require someone in the bottom 10% to pay the same tax rate as someone in the top 10%. And before anyone starts saying that this idea is socialist nature, please read the "Price of Inequality" by Joseph Stiglitz, who received a Nobel Prize in economics. Our country was the most successful and strong when our taxes were much higher than they are today.


Posted: July 26th, 2012 10:00 AM

No, we don't need a graduated state income tax. The state of IL needs to stop spending like drunken sailors and making outrageous pension promises that aren't mathematically possible to their union cronies first. Once real and meaningful and deep cuts are made, I will then be willing to contribute more of my hard earned money.


Posted: July 26th, 2012 9:36 AM

"and an identical average annual unemployment rate of 5.7%" - although my head was spinning regarding several of the "cut and paste" comments from Mr. Popowitz, this one made clearest that his "Utopia" was based on old, nonsensical, and cherry-picked "facts" - and all written by someone with little understanding of economics, taxation, government and finance. Leading with CA and HI as two states to emulate - which are going BK via promises to public unions - just like IL - also makes my point.

Jeff Schroeder from Oak Park   

Posted: July 26th, 2012 9:03 AM

I am not sure where the 2.1% tax rate comes from that Mr. Popowitz cites. I assume the study was pre-2011 when the highest state tax rate was 3%. For 2011 and beyond, millionaires are subject to the same 5% tax rate as everyone else in Illinois. If they pay significantly less than that, it is probably because they pay tax to other states where their businesses are located. Pro athletes, for example, must pay tax in every state where they have games.

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