Illinois Progressive Tax Gambit
The only two restraints—at least for now—on public union governance in Illinois are GOP Gov. Bruce Rauner and the state’s flat income tax. Democrats hope to do away with both in November.
Democrats in Springfield have filed three constitutional amendments to establish a graduated income tax—the rates won’t be determined until after voters give their assent. The state’s flat 4.95% income tax, believe it or not, is lower than the rate in all its neighbors save Indiana (3.23%). But its property and corporate taxes are among the highest in the country.
Last summer Democrats with the help of a handful of Republicans overrode Mr. Rauner’s veto to raise income and corporate taxes by about $5 billion annually. But the state is still running a $1.5 billion deficit this year, and Democrats are looking for more revenue to finance ballooning pension costs, which consume about a quarter of state spending.
Trouble is, they don’t want to appear to raise taxes again on middle-income voters. Hence the progressive tax gambit. Connecticut and New Jersey provide cautionary examples. Democrats in both states have soaked their rich time and again, and the predictable result is that both states have fewer rich to soak. Economic growth slowed and revenues faltered.
This vicious cycle is already playing out in Illinois amid increasing property, income and business taxes. Over the last four years, Illinois GDP has risen a mere 0.9% per year, half the national average and the slowest in the Great Lakes region. Between 2012 and 2016, Illinois lost $18.35 billion in adjusted gross income to other states. Its labor force has been contracting since 2008 while its neighbors grow their pool of human capital. Wisconsin with a 3.2% unemployment rate is recruiting workers in Illinois (4.9%).
As people have left the Prairie State, home values have tumbled. So local governments have jacked up property taxes more. The average property tax bill has risen by half over the last decade while home prices have fallen by 10%, according to the lllinois Policy Institute.
Democrats claim a progressive income tax will spare the middle-class, but sooner or later they’ll be the targets too because there won’t be enough rich to finance the inexorable demands of public unions. This is why Democrats haven’t proposed rates with their constitutional amendments. Vote now—pay later.
Once voters approve a progressive tax, Democrats can ratchet up rates as their union lords dictate—so long as they have a supermajority or a Democratic Governor. Hyatt hotels heir J.B. Pritzker, who has the backing of House Speaker for Life Michael Madigan, has pumped more than $60 million into his campaign to unseat Mr. Rauner.
One difficulty for Democrats is that they need a supermajority of both legislative chambers to place an amendment on the ballot. While they have the votes in the Senate, four Republicans are needed in the House. Mr. Madigan twisted some GOP arms last summer to override Mr. Rauner’s veto, and the patronage king may now try to buy off Republicans who aren’t running for re-election.
If Mr. Rauner loses in November and Democrats get their progressive tax, New Jersey is the ghost of Illinois future.
Appeared in the March 10, 2018, print edition.