By | March 27, 2014

It was an exciting week for A Better Illinois, the campaign to amend the Illinois Constitution to permit a fair tax under which lower rates apply to lower income levels and higher rates apply to higher income levels. Senator Don Harmon, the constitutional amendment’s sponsor, proposed a tax rate structure that would replace Illinois’s 5% flat tax if the amendment is approved by the voters in November. Under Harmon’s plan, 94 percent of Illinois taxpayers would pay less than they are paying now. That includes everyone whose income is less than $200,000. Here is a chart that shows how much taxes would be cut at different income levels:

Illinois Fair Tax Proposed Rate Structure
Income Current Rate New Rate Tax Cut
$12,000 5.0% 2.90% $221
$23,839 5.0% 3.42% $272
$55,137 5.0% 4.26% $303
$75,000 5.0% 4.43% $323
$100,000 5.0% 4.55% $348
$150,000 5.0% 4.66% $398
$180,000 5.0% 4.70% $428
$200,000 5.0% 4.80% $90

Senator Harmon’s proposal is revenue neutral, meaning that the overall revenue collected would be about the same as is collected now. 

A few days before Senator Harmon announced his fair tax rate plan, House Speaker Michael Madigan introduced a proposal to impose a 3 percent income tax surcharge on millionaires. The two proposals dovetail nicely. Both recognize the need to amend the Illinois Constitution. Both seek to address the unfairness of a system under which millionaires and minimum wage workers have the same tax rate. Both shift more of the tax burden onto those who can afford it, and thereby capture income where virtually all economic growth is occurring. Harmon’s plan adds fairness throughout the tax structure, so that people with lower incomes have lower rates and people with higher incomes have higher rates. The top bracket in Harmon’s scale starts at $180,000. The Speaker’s plan, with its 3 percent surcharge starting at $1 million, can be layered on top of Harmon’s.

The Speaker’s surcharge would raise an estimated $1 billion, all of which would be given to school districts to be used as they see fit.

The day after Sen. Harmon announced his fair tax rate plan, Governor Pat Quinn proposed his fiscal year 2015 budget. He actually proposed two budgets, one based on the scheduled expiration of the 5% tax rate on January 1, 2015, which would create a $2.5 billion revenue hole and force state agencies to cut their discretionary spending by 20%, with disastrous human and fiscal impacts. The other budget is essentially a maintenance budget with some major new education and early childhood initiatives that would take effect if, as he urged, the 5% income tax rate is made permanent. 

In addition to urging that the income tax rate hike be made permanent, Governor Quinn proposed doubling the state earned income tax credit for low-wage workers from 10% of the federal credit to 20%, over five years. He also proposed eliminating the state’s property tax credit for homeowners, which currently averages about $250, and replacing it with an automatic $500 tax refund. Thus, Governor Quinn joined A Better Illinois in recognizing the need for tax reform and tax relief.

The day after the governor announced his proposed fiscal year 2015 budget, the House Revenue Committee passed Speaker Madigan’s millionaire’s tax surcharge and held the Fair Tax amendment in committee. It is apparently Speaker Madigan’s intent to put the Fair Tax amendment on hold while he move the surcharge amendment through the House. Sen. Harmon is full speed ahead on getting the Senate to pass the Fair Tax amendment.

All in all, it was a week of major and hopeful developments for supporters of a Fair Tax in Illinois.

Find out how much your tax cut would be. Go to www.FairTaxCut.com.

 

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