Monday, April 28, 2014, purportedly marked Tax Freedom Day for Illinois taxpayers.
Coming thirteen days after state and federal income tax returns were initially due, Tax Freedom Day, according to the Illinois Policy Institute‘s Senior Budget and Tax Policy Analyst Benjamin VanMetre, marks the point in the year when Illinoisans have worked long and hard enough in the aggregate to cover their share of state, federal and local taxes “and can start keeping their hard-earned money.” About a third of Illinois residents’ efforts this year – 118 days’ worth out of the calendar year’s 365, in other words – went just to paying taxes.
Like all statistics, though, even if technically accurate, this one is misleading.
Due to differences in income, home ownership, and spending habits, no two Illinois taxpayers likely pay the same percentage of their income in taxes. (Put otherwise, no “average taxpayer” actually exists.) Low-income renters pay relatively (and nominally) less in income and property taxes and possibly relatively more (but nominally less) in sales taxes. High-income homeowners likely pay both relatively and absolutely more in income and property taxes and possibly relatively less (but nominally more) in sales taxes. They aren’t likely simply to average out. Many people pay a whole lot more, and thus effectively longer.
As in the federal system, a relatively smaller number of higher-income working individuals pays a disproportionate share of total taxes. These taxes fund not only reasonably necessary government services but also wealth-transfer programs including pensions to former state officials, teachers, and other public employees who once arguably provided government services but no longer do so. A relatively larger number of lower-income taxpayers pays a smaller percentage of total taxes and, in some cases, receives net payments from the government, therefore being effectively taxed at a negative tax rate.
Putting aside for a moment how their money is spent, things are about to get worse for Illinois taxpayers. The – ahem! cough! cough! – “temporary” 67% increase in the state’s flat rate income tax of a couple of years ago from 3% to 5% of adjusted gross income is about to take one of two directions: a drop to a flat 3.75% effective January 1, 2015 – still 25% higher than its 3% predecessor – or, more likely, a change to a “progressive” income tax system for persons who earn income in Illinois.
The “progressive” tax increase being sold as a solution to Illinois’ increasingly desperate financial straits is likely only to exacerbate them. If enacted, it would decrease the Illinois income tax rate from the scheduled reduced 3.75% to 2.9% of adjusted gross income only for those making the pathetically small amount of $12,500 per year or less; increase the rate to 4.9% for those making up to $180,00 per year; and hike the rate on those above $180,000 to 6.9%.
Why 2.9% and 4.9% instead of 3% and 5%, respectively? Because that way the politicians in Springfield can cynically claim they’ve “reduced” tax rates for a majority of Illinois taxpayers even though everyone making over $12,500 per year in Illinois will be paying more than they were three years ago. (Those in the 4.9% bracket will pay 63.33% more than they did before the “temporary” tax increase, and the fortunate few earning over $180,000 will pay nearly two-and-a-third times as much.)
Fortunately, this proposal would require an amendment to the Illinois constitution, and is drawing fire even from some perhaps unlikely quarters like the teachers’ unions. Still, don’t be surprised to see some sort of personal income tax increase in Illinois come 2015, even as the state continues to refuse to rein in wasteful spending.
On second thought, make that only one cheer for Illinois taxpayers.
David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery & John Ltd.
