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Thursday, April 28, 2016 12:22 am

Graduation exercise

Another plan to tax income by ability to pay

Rep. Lou Lang, D-Skokie

 

Everyone who cares enough to have an opinion agrees that revenue is at the heart of the State of Illinois’ present distress. Some say that’s because the state doesn’t raise enough of it, others that it raises it inefficiently or unfairly, yet others that it spends what it raises foolishly. They’re all correct, of course. Lou Lang, Skokie’s gift to Illinois government, has proposed a fix that addresses two of those faults by changing that system to raise a little more money and to make it a lot more fair.

Lang would do away with the present single flat tax rate on individual incomes in favor of a graduated rate. The higher the income, the higher the rate at which it would be taxed. Were Lang’s bill made law – and remember that it would take a change in the Illinois Constitution to take effect – it would establish four tax brackets ranging from 3.5 percent to 9.75 percent. Please note (too many press stories do not) that these are marginal rates. A millionaire head of household would not send 9.75 percent of her taxable income to Springfield. Instead, all her net income up to $200,000 would be taxed at 3.5 percent; everything above $200,000 up to $750,000 would be taxed at 3.75 percent, that part between $750,000 and $1,500,000 would be taxed at 8.75 percent and everything above $1,500,000 at 9.75 percent.

Lang’s bill thus would raise an estimated $1.9 billion a year in new revenue, but Lang is selling the bill as a tax cut, not a revenue-raiser. So it would be for 99 percent of Illinois taxpayers, including even most of our lucky duckies in the upper brackets. Lang says that a married couple with two kids and an income of $250,000 – and remember that a quarter of a mill is about five times the median income for Illinois households – would have their taxes cut by 500 bucks.

Here’s a real-world example of the effect a graduated rate can make on the taxes of us plain duckies. In 2014 I lived exactly half the year in Illinois and half in California, which taxes its citizens using graduated rates a la Lang. I earned, and paid taxes on, the same amount of money in each state. The check I wrote to the State of Illinois, which treats me the same as it treats its millionaires, was more than two and a half times bigger than the one I wrote to the State of California, which officially ranked me as poor.  

Which makes a graduated tax pernicious to those convinced that our jobs-makers would flee Illinois for low-tax havens were one imposed here. But there aren’t many of those havens left. Forty-one states tax income, and 34 of those tax it using graduated rates. California (whose economy is thriving) charges its rich a top rate of 13.3 percent. Minnesota (whose economy also is booming) takes 9.85 percent. Businesspeople will stay where they can make money, and Illinois is a good place to make money, whatever their bodyguards at the Illinois Policy Institute insist. (The corporate rate matters more, and that will be unaffected by Lang’s plan.)

Under any plausible tax regime, the rich pay most of the taxes. (They always will, because they have most of the money.) The poor pay more of their income in taxes. Which you regard as fairer depends mostly on what you feel about fairness, about what you feel about the rich and the poor – and what you feel about government. In my 2013 column about the graduated income tax, “Taxing work,” I noted that the good thing about taxing according to ability to pay is that it raises more money for state government. The bad thing about a graduated tax is that it raises more money for state government. Senate Republican Leader Christine Radogno damned the idea at the time for the latter reason – if you give the state more money, it will just spend it.

If a democratic government cannot be trusted to spend money wisely – by, for example, giving away millions to deadbeat business corporations – then the only sensible policy is to deny government any money at all. I agree that much of state spending is socially wasteful, but starving, say, our bloated public universities is the dumbest possible way to reform them. Hamstringing the power to tax its citizens cheats the people’s representatives of the flexibility to govern in a changing economy.

I appreciate that any debate about revenue is inescapably a debate about the nature of and role of government, its organization and administration, its proper ambitions. I don’t expect that the debate will be as edifying as it might – such debates never are – but at least it would be a chance to teach the public some things they need to know and don’t usually think about.  

Contact James Krohe Jr. at CaptBogue@outlook.com.

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