Plan to Make Illinois Tax System More Progressive Stalls

At a time when many states have toyed with the idea of paring back their progressive income taxes, Illinois policymakers this year showed real interest in a progressive change.

The state currently has one of the nation’s most regressive tax systems, applying the same income tax rate to minimum wage workers and millionaires. A proposal (The Fair Tax) would have authorized lawmakers to devise a progressive, graduated income tax structure with higher rates applied to higher income levels. (Note: this Fair Tax proposal is very different from the so-called “fair tax” proposals in other states designed to dismantle state tax systems by eliminating income taxes and replacing their revenue with increased sales taxes.)

Unfortunately, the Senate adjourned Tuesday without voting on this transformative proposal. Lawmakers had appeared poised to take up legislation that, if passed by a supermajority in both the House and Senate, would have allowed voters to amend the state’s constitution to permit a more progressive tax structure.

This battle led by Sen. Don Harmon was especially timely because the state’s temporary 5 percent income tax rate is set to fall to 3.75 percent in 2015. In fact, Sen. Harmon went one step beyond just urging lawmakers to cast their vote in favor of a graduated income tax and actually developed his own proposal whereby taxpayers would see their first $12,500 of taxable income taxed at 2.9 percent. Taxable income between $12,500 and $180,000 would be taxed at 4.9 percent, as opposed to the current 5 percent rate. And taxable income over $180,000 would be taxed at 6.9 percent. 94 percent of Illinoisans would not see their taxes go up under his plan, and no Illinoisan with income under $200,000 would see a tax increase.

In the wake of this setback, progressive policymakers and advocates are now setting their sights on 2016 as the next opportunity to put the Fair Tax proposal before voters. The campaign for the Fair Tax was spearheaded by a A Better Illinois Coalition . The Coalition released a statement saying that despite their obvious disappointment, “the fight for a Fair Tax – which enjoys the support of 77% of Illinois voters – is far from over.  Our statewide grassroots campaign, including more than 250,000 petition signatures and the support of more than 750 small businesses, faith leaders, labor and education groups, and civic and community organizations from every corner of the state brought us closer to implementing a Fair Tax in Illinois than ever before.”

Despite this setback there is, in fact, plenty Illinois lawmakers can do right now to raise needed revenues in a fair way. Preserving temporary income tax increases, possibly with low-income offsets, can achieve the same goals as the stalled effort at constitutional reform.

Tax justice advocates should take these words of Abraham Lincoln to heart: “Always bear in mind that your own resolution to succeed, is more important than any other one thing.” The Illinois tax reform debate is hardly over and this week’s activities should only act to encourage and shore up the resolve of advocates in Illinois and elsewhere.