Will lawmakers approve new income tax system?

News-DemocratApril 26, 2014 

AP GRAPHIC

Two lawmakers pushing to amend Illinois' constitution to replace the state's flat-rate income tax with a graduated tax that has higher rates for higher incomes say they might have enough votes in the legislature to advance the measure.

Proponents say the plan would give a tax cut to 94 percent of Illinoisans. But opponents say it's a deceptive cut -- a cut only in comparison to the current tax rate, which includes a temporary tax hike.

The two Democratic lawmakers -- Sen. Don Harmon of Oak Park and Rep. Christian Mitchell of Chicago -- were in Belleville in the past week to campaign for their proposal, which they call the Fair Tax. They said they'll call for votes on it in the upcoming week in the House and Senate.

If it passes with a three-fifths majority in both chambers, it would go before voters this fall in the general election.

"I have the votes in the Senate to pass it," Harmon said.

Mitchell said he's "close" in the House. "I think we're going to be in good shape," he said.

But to get a 71-vote super-majority in the House, the measure would need some "yes" votes from Republicans. And Rep. Dwight Kay, R-Glen Carbon, said GOP lawmakers in the House remain united in opposition to the plan.

"I don't think there are any House Republican members who support a graduated tax," Kay said. "I doubt that has changed since the last time I checked with the caucus or any individual members. They were adamantly opposed to it."

Here's how the plan would work:

* The first $12,500 in income that a person earns would be taxed at 2.9 percent.

* Income on top of that, up to $180,000, would be taxed at 4.9 percent.

* Any income above $180,000 would be taxed at 6.9 percent.

The state's current tax rate is 5 percent. But it's scheduled to drop back down to 3.75 percent in January, when the temporary tax sunsets. The temporary tax is equal to a week of pay.

Some Democratic lawmakers say they need to do find some kind of revenue source -- either making the temporary tax permanent or replacing it with something else -- in order to make up for the $4 billion that comes annually from the temporary tax. Otherwise, they say, the state will have to make cuts in critical areas such as education and police.

Harmon said his plan is "the more palatable of two distasteful alternatives."

Harmon also said it's not deceptive to say 94 percent of people would get a tax cut, in comparison to the current tax, because Democratic leaders in the House and Senate will certainly push through an extension of the temporary tax if the graduated tax plan doesn't get approved.

What about the notion of equality, and treating everybody equally? Why charge higher rates to people who earn more? Mitchell said the graduated tax is more fair than a flat tax because people with lower incomes are required to spend a greater portion of their earnings on necessities.

Kay said the plan is anything but fair.

"We're going to penalize people for taking initiative and taking risk, and being successful. That's not what I would consider to be the American way," Kay said. "If you want to kill the entrepreneurial spirit, you can do it with a graduated tax. If you want to further invite business to leave Illinois, you can do it by passing a graduated tax."

Kay also warned that taxpayers should be leery because once they vote to allow a graduated tax, legislators will have the power to increase the proposed rates.

"There's nothing that casts these rates in concrete," he said. "Guess what? They can do it, and you'll end up paying more -- a lot more."

Kay said the temporary tax resulted in $27 billion in revenue for the state, "and we're still a bankrupt state. There's never going to be enough revenue to pay for the ongoing, irresponsible spending this state does."

Harmon said the revenue from the temporary tax was used in part to make payments to pension plans and avoid cuts.

"It really did buoy the state," Harmon said. "What we're asking right now is, can we put this tool in our toolbox?"

Mitchell said the plan is "not a big revenue grab," but rather a proposal to keep important services funded.

Mitchell said some metro-east lawmakers are "open" to the plan. "I'm confident folks are going to come along," he said.

LOCAL IMPACT

Voices for Illinois Children, which supports the graduated tax plan, looked at how the proposal would impact taxpayers in certain parts of the state. The group found that most metro-east residents would pay less state income tax than they do under the current rate.

Opponents argue, however, that the comparison is deceptive. They note that the current tax rate used in the comparison includes the temporary tax increase, which was approved in 2011 and is supposed to go away in January.

The analysis by Voices for Illinois Children found that with the graduated income tax, rather than the current tax rate:

* 98 percent of St. Clair County residents would pay less.

* 98 percent of Madison County residents would pay less.

* 100 percent of East St. Louis residents would pay less.

* 97.5 percent of Belleville residents would pay less.

* 99 percent of Alton residents would pay less.

Contact reporter Brian Brueggemann at bbrueggemann@bnd.com or 618-239-2511.

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