SPRINGFIELD – Days after the governor donated $51.5 million of his personal fortune to a committee supporting a graduated income tax constitutional amendment, a new coalition has begun an effort to defeat the measure.
At stake is Gov. JB Pritzker’s signature policy proposal – a constitutional amendment scrapping the state’s protection of a flat-rate income tax for a new structure allowing lawmakers to tax different levels of income at fluctuating tax rates. A rate structure that would take effect if the amendment passes is expected to bring in more than $1 billion in additional state revenue this fiscal year and more than $3 billion annually when it is implemented for a full fiscal year.
Pritzker’s whopping check, reported over the July 4 holiday weekend, went to the Vote Yes for Fairness ballot initiative committee, to which he had already donated $5 million. The only other donation to the committee was for $250, so the governor is basically self-funding the committee’s push for the constitutional change from his estimated $3.4 billion fortune.
On Tuesday, in four cities, a group of business-tied organizations – including the Illinois Chamber of Commerce, Illinois Farm Bureau, National Federation of Independent Business-Illinois and the Technology and Manufacturing Association – called concurrent news conferences in four cities to make their case against the proposal.
Todd Maisch, president of the Illinois Chamber, said at the news conference the coalition – which he is hopeful will grow to include several more business groups – was “not prepared” to address how much it was willing to spend on the fight.
“However, there will be resources,” he said. “But again, the important thing is we don't need to match the proponent spending. We only have to go ahead and be competitive. We don't need to spend dollar for dollar because this is, frankly, an unpopular idea once voters figure out what's really going on. … If the proponents were certain that they had this in the bag, would they have written a $51 million check? I don't think so.”
The news conference prompted a swift pushback from pro-amendment groups, including from Vote Yes for Fair Tax, another committee backed by community and advocacy groups, labor organizations and faith groups.
“Working people overwhelmingly support the fair tax amendment because everyone who makes under $250,000 will get a tax cut or pay no more,” John Bouman, the group’s chairman, said in a news release.
The Rate Structure
Ultimately, it will be up to the voters whether the flat tax – which currently taxes all income at a flat rate of 4.95 percent – will remain enshrined in the state’s governing document as it has been since the 1970 constitutional convention. If more than half of those voting in the November election or three-fifths of those voting on the ballot question approve the measure, the way will be paved for a graduated rate structure to take effect.
Lawmakers have already approved the rates that will become law on Jan. 1 should voters approve the constitutional change. Rates would remain flat or decrease for those making $250,000 or less, while they would increase for those making above that amount.
Per the rate structure, single filers would pay the maximum rate of 7.99 percent on all income once their taxable income tops $750,000. For joint filers, that rate takes effect on all income when it exceeds $1 million.
For the rest of the brackets, each varying tax rate would apply to only one specific margin of income.
The rates for all filers are 4.75 percent on taxable income from $0 to $10,000; 4.9 percent from $10,001 to $100,000; 4.95 percent from $100,001 to $250,000.
For joint filers, a 7.75 percent rate would kick in on margins from $250,001 to $500,000; and 7.85 percent from $500,001 to $1 million. For single filers, the 7.75 percent rate applies from $250,001 to $350,000, while the 7.85 percent rate applies from $350,001 to $750,000.
The bill also includes an increase in the property tax credit from 5 percent to 6 percent, and up to a $100 per-child tax credit for couples earning less than $100,000 and single persons earning less than $80,000.
The corporate tax rate would go from 7 to 7.99 percent, not including an existing corporate property replacement tax of 1.5 to 2.5 percent that is not changed by the bill.
The main argument for the opposition is not about what the rate structure will do upon the amendment’s passage, but rather focuses on whether Illinois politicians can be trusted with the power to set varying tax rates on differing levels of income.
For proponents, including Pritzker, passage of the measure is about raising revenue from the state’s highest earners without having to rely on middle class Illinoisans to balance state books. Financial strains from the COVID-19 pandemic make it even more necessary, he has said.
Illinois Farm Bureau President Richard Guebert, however, said the revenue projected to come from the graduated tax will not balance the state’s books, considering the pandemic’s effects and rising pension and debt obligations. That means, he argued at the news conference, that adjustment to the already-passed rate structure would be imminent.
Unspecified spending cuts and reforms to the state’s pension payment plan should take precedence over attempts to raise more tax revenue, the opponents argued.
“Illinoisans are rightfully concerned that the progressive tax will lead to future tax increases,” Guebert said. “If enacted, this proposed tax increase will not meet the projected deficits and debt obligations that are coming in the next few years. ... It's a farce to believe that we can just tax the top 3 percent of income earners over and over again.”
The graduated tax structure would not change the number of votes in the General Assembly needed to raise taxes – the necessary threshold would remain a simple majority. Opponents, however, argue that it’s politically easier for elected officials to vote for a tax hike when it applies to only some of the state’s residents, not all of them.
Another opponent, Cindy Neal of NFIB Illinois, said property tax relief should be a greater focus than revenue hikes.
While opponents argue that the increased corporate rate would hurt job creators and small businesses, proponents have argued the vast majority of small business owners will see a tax reduction under the plan if they are pass-through entities such as S-corps or sole proprietors.
Among those proponents is Quentin Fulks, a former Pritzker top campaign staffer who heads the Vote Yes for Fairness committee to which the governor has funneled his millions.
“Since the truth isn’t on their side, this press conference was filled with lies from start to finish,” he said in a statement immediately following the opposition news conference. “Contrary to what they say, the fair tax will only affect small businesses that make more than $250,000 a year in profit, while at least 97 percent of Illinoisans will see no income tax increase or a tax cut.”
Similar arguments will be sent to every household in the state in the form of a pamphlet explaining the amendment later this year. A secretary of state spokesman said the pamphlet, which the state is required by law to send, will be mailed starting Sept. 21. The arguments for the change were written by Democrats, while Republicans wrote the arguments against.