Booby-trapping the tax system
This week I take up, and just as quickly put down, the question of a graduated income tax for Illinois.
Not many states have a flat rate tax on incomes. Illinois does so for reasons that have nothing to do with economic efficiency or philosophical principle. The flat rate was a constraint of 1870 constitution. (There was a court case in 1932.) the new con in 1970 was chance to build more flex into the system. One bloc wanted the document to authorize no tax income at all, another wanted an income tax on the progressive federal model. (That is an over-simple summary of what was a very complicated debate.) The fudge was that the progressive taxers agreed to accept a non-progressive flat tax being written into the constitution in exchange for the non-taxers’ acceptance of the power to tax income at all. Republicans acquiescence was bought by ending the graduated tax on real and personal property, which offended the sensibilities of the propertied class.
The linkage between individual and corporate rates was written into the state charter for same reason. By stipulating that the ratio of the corporate and the individual rates can be no higher that 8 to 5, the constitution-makers in effect set a booby-trap for future legislatures. If the General Assembly tried to raise the rate on businesses – which most people who don’t own one tend to support -- the individual rate would go up too, a decision that would blow up in the faces of legislators next election day.That decision in 1970 gave the state a modern revenue source, but by exempting great piles of income from the income tax, the constitution crippled the State of Illinois’ ability to raise the money it needs to run itself. But while good politics seldom results in good policy, without good politics you seldom get any policy at all.