Southern Illinois wouldn’t see much change with graduated tax. Why are voters opposed?
Only a handful of southern Illinoisans would pay more if voters decide to change the state’s income tax system on Nov. 3.
But that’s not the point, residents say, when asked about the “Fair Tax” constitutional amendment proposed by Gov. J.B. Pritzker. It would allow lawmakers to increase taxes incrementally on those who earn $250,000 or more annually.
“I don’t have very much confidence that they will do a good job if they do expect more money from the Illinois people,” said Susan Genin, a 64-year-old retired math teacher from Columbia.
Eventually they’ll need more money to fill a deficit worsened by COVID-19, but there’s “no way they can tax the rich that it’ll be enough money,” she said.
Supporters say it’s about time for the 3% of Illinois’ top earners who would be immediately affected to contribute equitably to long neglected and impoverished downstate communities.
“(The state) is always cutting money from underserviced communities that they continue to call ‘hard to serve,’” says East St. Louis resident Stephanie Taylor. “We are continually traumatized and made inequitable by them taking from our community first. The Fair Tax would at least take us out of this outdated system.”
Yet it’s the anti-tax message from business groups and the GOP that resonates with the southern region’s fiscally conservative voter base. They argue that Democratic lawmakers with ties to the Chicago political elite will eventually use the graduated system to raise taxes on the middle class, even if they don’t do it right away.
Democratic House Speaker Michael Madigan’s implication in alleged corruption involving the state’s largest electric utility has only reinforced that view.
“I don’t think the original intention of the tax was to hurt small business owners,” said Noel Harnetiaux, who owns a real estate company in Greenville. “But it’s possible it may do that. I’m also not a fan of big government. ... I feel the proposed tax hike as written gives an awful lot of power to change our tax rates in the future, and that worries me as a resident of Illinois and as a small business owner.”
The ballot proposal itself doesn’t change the tax rate. It allows the General Assembly to remove the mandated 4.95% flat tax from the state constitution.
If approved, it would clear the way, effective Jan. 1, for the graduated tax law the governor signed in June 2019. Estimates indicate Illinois — one of only nine states that still uses a flat tax — could generate roughly $1.2 billion or more in the first six months of 2021 under the graduated structure.
Pritzker and supporters say the tax revenue is needed following years of financial mismanagement by both Republicans and Democrats. Losses caused by COVID-19, expected to leave a $6 billion hole for the next year’s budget, have only increased the urgency for new revenue, they contend.
The amendment must be approved by 60% of those who vote on the issue, or a simple majority of total votes cast.
Roughly 66% of voters statewide favored the Graduated Income Tax Amendment, but only 55% of downstate voters, according to a March poll by Carbondale-based Paul Simon Public Policy Institute.
“It only has to be moved downward to 60% before the thing fails,” said visiting professor John Jackson. “I think it’ll be close.”
Distrust of Illinois spending
Small business owners worry the state will use a graduated system to tax more than just what they bring home from their companies.
Because of how Harnetiaux’s real estate company is set up, it is taxed separately from her personal income. That’s not always the case, said Amanda Dussold, who owns a yoga studio in Greenville and teaches tax theory at Southern Illinois University Edwardsville and Greenville University.
If an owner runs a company as a sole proprietor, business earnings could flow through their individual taxes, Dussold said, meaning they could be taxed for money they didn’t necessarily bring home.
Even if they don’t increase taxes on the middle class right away, lawmakers could reduce the threshold for triggering a higher tax rate to $200,000, $150,000 or lower, said Todd Maisch, president and CEO of the Illinois Chamber of Commerce. He pointed to Connecticut as an example of how a graduated income tax can be a slippery slope. The state switched its tax system in 1996 and by 2015, it had divided taxable income into seven brackets.
That could ultimately cause an outmigration of business from Illinois, Maisch said.
Dussold said she believes most southern Illinoisans would have “no problem turning around and extending a hand” to someone in need, but wishes the government wouldn’t get involved.
“Do you want to have that responsibility as an individual or hand that over to the government?” Dussold said. “Communities can provide these services that are typically government-based. Communities can do that. Do you really trust how the government is spending that revenue?”
‘Fair Tax’ for low incomes
These arguments miss a critical issue, proponents say: fairness. Middle class earners see the Fair Tax tax as a way to make taxation more equitable.
Taylor, the East St. Louis resident, founded Community Development Sustainable Solutions, an economic development and community advocacy nonprofit, to address what the she says are inequitable state policies.
Predominately Black Illinois communities such as East St. Louis suffer from disproportionate poverty and lack of state funding, she said, while white communities also suffer from poverty. Nearly 44% of Illinoisans living in poverty are white, according to the most recent U.S. Census Bureau data.
“For a middle-to low-income person who you’re asking to get off of welfare, do you trust $8 an hour or $10 an hour to empower them?” Taylor said. “How much money could we generate immediately to spread across under-serviced and underfunded communities?”
East St. Louis and other low-income communities are still recovering from a budget impasse under former Gov. Bruce Rauner that devastated services like Meals on Wheels and public health, Taylor said. East St. Louisans would feel they’re getting a fairer shake if the the ultra-rich bear more of the burden, she added.
“In the metro-east region of southern Illinois, it means that as you’re telling us to do it ourselves and get on our feet, we know that we’re being taxed at a more equitable rate,” Taylor said.
BEHIND THE STORY
MOREWhat questions do you have about the 'Fair Tax'?
What questions or thoughts do you have about the proposed graduated income tax? Do you have thoughts you’d like to share with the BND? Send your questions or comments to reporter Kelsey Landis at klandis@bnd.com or call her at 618-239-2101.
John Johnson, a professional magician from Dorsey, says he believes southern Illinoisans will see the value in a graduated tax.
“When we’re talking about overall tax burden, it’ll help more evenly distribute that burden,” said Dorsey, 58. “With the people in the higher income brackets, they’re able to absorb that hit without it affecting their day-to-day.”
For residents of communities like East St. Louis or other lower-income areas of southern Illinois, the tax “would have no effect or very little effect” on residents’ bottom line, said David Merriman, an economics researcher and professor at the University of Illinois Chicago Institute of Government and Public Affairs.
In the metro-east counties of St. Clair, Madison, Washington, Monroe, Clinton, Randolph and Bond, the median household income was just over $58,000 in 2018, while in 11 southernmost Illinois counties the median household income was roughly $42,100, according to U.S. Census Data. Even earners who made double the median household income wouldn’t be subject to a new graduated income tax.
If the governor’s office or other state power wanted to tax those people, no legislator would want to vote for it, said 111th District state Rep. Monica Bristow, D-Alton. The process for passing increases wouldn’t change and a majority would still have to approve it.
History shows that increasing taxes on the middle class is not the likely result. Merriman said an analysis of more than 20 years of data from states with both graduated and flat rate structures shows “tax rate change has been very similar in both kinds of systems.”
If they need to increase revenue, lawmakers tend to avoid the income tax, Merriman said. Cigarettes or gambling are much safer politically than taking money from paychecks.
Johnson, the magician from Dorsey, says the opposition’s view is based on fear.
“It’s all maybe they could this, maybe they could do that,” Dorsey said. “And it all seems to be rooted in a mindset that the government doesn’t work for us, that the government is out to put the screws to us. I think that’s a counterproductive state of mind and I don’t think it bears out in the real world.”
This story was originally published October 1, 2020 at 5:00 AM.
