State Rep. Naomi Jakobsson, D-Urbana, penned a press release attempting to mask her agenda for higher taxes in Illinois and sell her progressive tax plan as something it isn’t.
When it comes to her peers and opponents, Jakobsson (photo right) suggests that arguments about a progressive income tax for Illinois need come with coherent policy arguments combined with facts. Yet her argument is neither coherent nor is it fact based. Fortunately, for those following the debate in Illinois, Jakobsson’s arguments only highlight the flaws in her own agenda.
Jakobsson myth # 1:
Myth: Jakobsson’s proposal will lower taxes on 83 percent of Illinois taxpayers.
Fact: Jakobsson’s progressive tax proposals don’t include a rate structure – meaning taxpayers have no idea what they’ll be on the hook for if Jakobbson’s bill passes. Here are both of the progressive tax hike bills the representative introduced during the spring session – neither includes tax rates:
Here is a link to the first piece of legislation.
Here is a link to the second piece of legislation (which was revamped with friendly marketing language to make the tax hike sound nice).
Not including tax rates is a strategic move by lawmakers who want Illinoisans to vote on a progressive tax without telling them how much it would increase their tax bill.
Asking lawmakers to figure out the exact tax rates later on is sort of like buying a car and letting the dealer decide the interest rate on your auto loan once you've walked off the lot – you never know what you’ll end up paying.
There’s no telling how high Illinois’ rates would go if the state implemented a progressive income tax. Will the income rates go as high as Hawaii’s 11 percent? Will they follow California and push the top rate to 13.3 percent? Or will Illinois set the bar even higher?
The progressive income tax is a dangerous proposal in the first place, but it’s doubly dangerous when voters don’t even know what rates will be implemented beforehand. That’s a recipe for disaster.
Fact part 2: There has been support for different progressive tax rate structures that weren’t included in the legislation. But the support for different progressive tax plans with changing rates highlights a fundamental flaw with the progressive income tax – it’s called bracket creep. Progressive income tax structures often don’t raise enough revenue to keep their progressive supporters happy. So what happens? Politicians add a few more brackets to the rate structure – and over time the brackets creep down the income ladder.
This just happened in California. California added three more brackets to the state’s already steep progressive structure, increasing the top marginal rate to 13.3 percent. To put that tax hike into perspective, the state’s second-highest rate of 9.3 percent kicked in at only $48,029, and the 10.3 percent “millionaire’s” rate kicked in at one million dollars before the tax hike. The new millionaire’s rate is 13.3 percent and the old 10.3 percent rate now kicks in at $250,000.
Progressive tax supporters in Illinois are already guilty of this – and they haven’t even come close to passing a plan. The first plan introduced was supposed to cut taxes rates for 94 percent of Illinoisans (even though the math and logic behind that statistic was grossly flawed). Now the new plan will apparently cut rates for 83 percent of Illinoisans. The rates are already going higher – imagine what would happen if Illinoisans pass one of Jakobsson’s proposals without rates and leave it up to Springfield to decide the tax sutures.
Jakobsson myth 2:
Myth: Despite the higher taxes that will be implemented as part of a progressive tax, wealthy individuals and businesses will stay because it would be tough for them to find comparable economic opportunity.
Fact: In today’s modern economy, capital and labor are becoming increasingly mobile. This means people and businesses are better able to vote with their feet and locate in the most competitive states. Need proof? Simply look at how the nine states with the highest income tax performed between 2001 and 2011 compared with states that don’t tax income. Here are the numbers:
- Population growth:
- No-tax states: 15 percent
- High-tax states: 6 percent
- Gross State Product growth:
- No-tax states: 63.5 percent
- High-tax states: 45.2 percent
- Nonfarm payroll employment:
- No-tax states: 12.7 percent
- High-tax states: 4.9 percent
- State and local tax revenue:
- No-tax states: 76.3 percent
- High-tax states: 47.9 percent
Jakobsson myth # 3:
Myth: Illinois has a revenue problem.
Fact: Illinois’ revenue is at an all-time high. The state has more money than it ever has. Illinois’ problem is with spending, not revenue. State spending has grown nearly three times faster than inflation and population since 1990.