The rich in Illinois have to pay more. It is a moral imperative.
Last week, the Civic Committee of the Commercial Club of Chicago, which represents the biggest companies and highest paid CEOs in Illinois, did our state a favor by calling for billions of dollars in tax hikes.
That might not sound like a favor. Nobody likes higher taxes. But the Civic Committee was going bold, and it was time somebody did. Illinois is in the grip of a financial crisis, faced with $130 billion in pension debt, and the state’s economic prospects will be a joke until the crisis is resolved.
When Gov. J.B. Pritzker presents his first budget proposal on Feb. 20, we can only hope he’ll be every bit as bold. We urge him to present a plan that beats the debt into submission right away, not over decades. We hope he’ll do the hard but honest stuff, like raising taxes, right now.
But let’s consider how the Civic Committee gets all the rest wrong. Let’s look at how its plan to save Illinois hits working people hardest and demands too little of the rich. Let’s understand how this kind of thinking is hollowing out the middle class, creating an undemocratic aristocracy of ultra-wealth and power, and dragging down economic growth.
The Civic Committee plan, “Restore Illinois,” calls for taxing personal and corporate income by another percentage point, expanding the sales tax to include more services and taxing retirement income. Lower-income seniors would be allowed to deduct the first $15,000 in income.
The total effect would be to burden lower and middle-income people the most.
Take a stand right now, on a progressive tax
Illinois has a flat income tax — not the progressive income tax of 34 other states — which means that all of us, rich or poor, pay the same tax rate on almost every dollar we make. That might seem fair, but it’s not. It means a corporate CEO who pulls in $10 million a year pays no more tax on his last dollar of income than an office cleaner who earns $35,000 a year pays on her last dollar.
The Lake Bluff CEO might spend that dollar — and hundreds of thousands more — on a second or third home. And if taxed at a slightly higher rate, he’ll survive. But the Little Village office cleaner might spend that dollar on rent and diapers — and hope it’s enough.
We agree with the Civic Committee that an income tax hike is inevitable, and it’s probably true the state can’t wait until the flat tax is replaced by a progressive tax. That would take a politically difficult change to the state Constitution that can’t happen for at least a couple of years, if ever. There’s no getting around the reality that Illinois must raise billions of dollars more immediately.
But the Civic Committee, and all the wealthy folks it represents, would be on higher moral ground if it also, right now, took a stand for a progressive income tax. That certainly would make it easier to take seriously some of the committee’s other proposed solutions, such as taxing retirement income.
It’s one thing to tax the income of a retired person living on, say, $120,000 a year. It quite another thing to tax the income of a retiree living on, say, $30,000 a year. But a flat tax makes no distinction. A progressive income tax, with its different rates for different income, builds in fairness.
A disappearing middle class
We find it odd that the Civic Committee wants to hike the flat income tax and expand the sales tax, both of which hit lower- and middle-income people hardest. But, at the same time, it wants to abolish the estate tax, which would cost the state almost $300 million in revenue just this year.
As representatives from the Civic Committee explained it to us, Illinois is an “outlier” when it comes to taxing inheritances; most states don’t. So people of means leave Illinois rather than pay the tax.
But, we replied, Illinois also is an “outlier” in not having a progressive income tax. We worry more about the disappearing middle class than about the disappearing rich.
As Illinois claws its way back to fiscal health, it must take care not to accelerate the greatest threat to American democracy in the last 40 years — our nation’s growing wealth and income gap.
In Illinois in 1960, according to a study by the Illinois Economic Policy Institute, the top 1 percent of workers took home 3.4 times as much income as the median worker. By 2014, the top 1 percent was earning at least 14.3 times as much as the median worker.
And on the national level, the story is the same: The middle class is thinning out. In 1970, the richest 1 percent of Americans held about 10 percent of the nation’s wealth. Today, the richest 1 percent hold 40 percent of the wealth.
Keep Illinois about working people
Those who sound the alarm about growing income inequality are often accused of engaging in “class warfare.” But, in fact, just the opposite is true. If we do not put the breaks on growing inequality, our nation is in danger of becoming a much more class-based society, with a sliver of Americans at the tippy-top controlling almost all the wealth and power.
Not by chance is our governor a billionaire.
Our previous governor was halfway to becoming a billionaire.
If inequality is bad for democracy, it’s also bad for the economy, leading to slower economic growth. A 2014 study by Europe’s leading economic think-tank, the Organisation for Economic Cooperation and Development, concluded that the United Kingdom’s economy would have been 20 percent bigger had the gap between rich and poor not widened since the 1980s.
We believe in free markets. We just don’t think the philosopher Adam Smith, when extolling the rewarding of merit, was thinking winner takes all.
Illinois has always been about working people. Let’s keep it that way.
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February 11, 2019 at 05:35PM