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Sunday, February 5, 2023

Business Works – Graduated income tax is not a good return on the investment


Below is the actual wording of the Graduate Income Tax referendum question that will be on your election ballot on November 3rd:

“The proposed amendment grants the State authority to impose higher income tax rates on higher income levels, which is how the federal government and a majority of other states do it. The amendment would remove the portion of the Revenue Article of the Illinois Constitution that is sometimes referred to as the “flat tax,” that requires all taxes on income to be at the same rate. The amendment does not itself change tax rates. It gives the State the ability to impose higher tax rates on those with higher income levels and lower income tax rates on those with middle or lower income levels. You are asked to decide whether the proposed amendment should become a part of the Illinois Constitution.” ___Yes ___No

We discussed earlier the notion of it being a “fair tax” where higher income earners would pay a higher tax rate negates Illinois Department of Revenue data that shows that the two highest tiers of income earners – $100,001-$500,000 and $500,001+ respectively at our current fixed income tax rate contribute 67% of our state’s income tax revenues, yet these top tiers represent only 20% of all the income earners in the State of Illinois.

There are two key taxpayer protections in the current constitutional amendment that would be lost under the graduated income tax proposal:

  1. The state can only levy one tax-based income. If removed, industries would be vulnerable to double taxing based on the whelm of future general assemblies to gain additional tax revenues. 
  2. The state is capped on the tax rate it can impose or levy on corporations.

Illinois currently has the 4th-highest corporate tax rates in the country. If these two protections are lost by adopting of the graduated income tax, business retention and attraction efforts will be diminished. The neighboring states of Indiana, Iowa, Kentucky, and Missouri have all cut corporate income taxes in recent years, while Illinois is proposing the opposite course.* Business investment creates jobs and spurs all aspects of the economy.

Proponents of moving to a graduated income tax imply relief for lower income households which is minimal from the estimates that I have seen and could change year to year based on what the general assembly decides to set for the tax rate for any given year.

If the true intent is to support lower income families, creating tax credits for these families would ensure intended results. Voting yes to this referendum makes all income taxpayers vulnerable to tax increases with no provision for how the additional tax revenues will be applied; no promise of property tax relief, no promise of increase in investment in public education or reduction in pension debt.

So, what are we buying with the constitutional change? A pile of money for the state to use at its discretion that threats economic growth in Illinois.

* (Tax Foundation, Twelve Things to Know About the “Fair Tax” for IL, 3/11/20)

Reba Morgan Osborne
Reba Morgan Osbornehttp://naperville.net
Reba Morgan Osborne is the Director of Government Affairs for the Naperville Area Chamber of Commerce. Contact Reba at (630) 544-3387 or rosborne@naperville.net.