The Illinois “Fair Tax” Movement
Drifting Towards The Whirlpool
Drifting Towards The Whirlpool
The so-called “Fair Tax” in Illinois ISN'T The FAIRtax H.R. 25 at all.
But instead a graduated, layered, and progressive state personal income tax. It looks as if the measure is on its way towards a referendum in November.
Illinois does have a personal income tax, but since the income tax was adopted in 1969, the rate has been flat (see, The Institute for Illinois Fiscal Stability “Graduated Income Tax Proposal Part I: Why Does Illinois Have a Flat Income Tax?” 1/24/20).
Among the 41 states with a general income tax, Illinois is 1 of only 9 whose rate is flat; joined by Colorado, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania, Utah.
History
Until the Great Depression, Illinois relied on a statewide property tax for most of its revenue. In 1932, with finances in disarray during the Great Depression, the legislature approved a graduated income tax. However, the Illinois Supreme Court struck the new tax down, holding the new tax didn’t comport with the state’s 1870 Constitution.
The next attempt at an income tax came in 1969. The effort succeeded, prompted by a looming $1 billion budget deficit. Illinois enacted a flat 2.5% state income tax on January 1, 1969. The following year Illinois voters enshrined the flat-rate income tax for individuals, and a separate flat-rate income tax rate for corporations, in a new state Constitution.
Over the years, there were 6 changes to the flat personal income tax rate, with two actually decreasing the rate. Today’s rate is now 4.95%.
The new revenue source, sadly, proved to be a temporary fix. Illinois recently ranked 50th among all U.S. states for fiscal health according to the Mercatus Center (see “State Fiscal Rankings,” 10/9/18).
Ranked Last
As of a year and a half ago, Illinois’ unfunded pension liabilities were $445.79 BILLION, 67% of state personal incomes. Other post-employment benefit liabilities (“OPEB”) were $51.9 Billion, 8% of state personal incomes, for a total of 75% of state personal incomes. Ibid. Illinois hasn’t truly balanced its fiscal budget since 2001 despite a constitutional requirement, according to Ben Szalinski (“Bill Would Curb Illinois State Budget Gimmicks Allowing Deficits Since 2001” Illinois Policy, 2/27/20).
Now Illinois wants to double down on its 1969 mistake and make its personal income tax graduated and layered.
How To Fix The Problem
We FAIRtaxers know the permanent fix to Illinois’ fiscal problems. Starting with the states who have no personal income tax, 3 are in the Top 5 measured by fiscal condition (Florida, South Dakota, and Tennessee [which taxes personal investment income]). 4 are above average (Alaska, Nevada, New Hampshire [which also taxes personal investment income], and Wyoming). And 2 are no worse than average (Texas, and Washington). Generally, the economies of these states have done well.
But we can do better! These 9 states still have business taxes, except for South Dakota. If these states were to enact true state-level FAIRtaxes, they would grow exponentially and put pressure on other states to follow. These 9 states had better look over their shoulders, though. We have significant FAIRtax movements in Alabama, Georgia, and Nebraska.
Illinois could tack away from the whirlpool of a graduated, layered, and progressive state personal income tax and instead make history by enacting a true state-level FAIRtax. Imagine what a powerhouse Illinois would be if it were to beat Alabama, Georgia, and Nebraska to the FAIRtax finish line!
Illinois State Leaders
One of our national Delegates is Mark Pearson of Carlyle. If you want to help Mark, you can connect with him at (618) 606-0740 and by clicking here to email Mark Pearson
The State Director for Illinois, also a Delegate, is Marilyn Rickert of Oak Forest. You can connect with Marilyn at (708) 687-9412 and by clicking here to email Marilyn Rickert . Please let Mark or Marilyn know if you can help.
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Jim Bennett
AFFT Grassroots Coordinator & Secretary