Pritzker’s “Fair Tax”

The editors of the Chicago Tribune remark on the keystone of Illinois Gov. J. B. Pritzker’s plans for the state, a graduated income tax for Illinois which he calls the “Fair Tax”:

Pritzker has given $56.5 million to an advocacy group promoting passage of the constitutional amendment that would change the way Illinois levies taxes. His tax is opposed by many in the business community, including the Illinois Chamber of Commerce. Ads supporting the constitutional change began airing Thursday. But don’t believe everything you see on TV.

If the amendment passes, Pritzker says Illinois would raise the tax rate on the 3% of highest-income earners, generating about $3 billion more the first full year . The Democratic governor and his allies think it’s such a nifty idea to go after taxpayers to make up for the sins of profligate politicians that we fear the longer-term consequences: If Springfield is freed from the constitutional constraints of a flat tax rate, soon enough middle-class earners also will get hit with a rate increase. That’s because lawmakers find it easier to hike taxes than cut spending, reduce regulatory burdens or take other actions to encourage employers to stay in Illinois, invest and grow the economy.

The study of the proposed graduated tax, conducted by a consulting firm and a Southern Illinois University professor, says the Pritzker tax won’t solve the state’s problems. It will kill jobs and shrink the economy by up to $1.8 billion as more residents flee the heavier tax burden by moving out of state. The study says that as the Illinois Exodus worsens, household spending among high earners will decline by up to 0.8%. Women and minority workers will take the biggest hit because many are employed in industries such as restaurants and hospitals that are most likely to lose revenue as the wealthy depart.

And by the way, the study confirms that our concerns about spiraling tax increases are legit: “States with graduated income tax systems, like California and Connecticut, tend to increase the number of tax brackets and the corresponding tax rates over time. Because the anticipated revenues from the legislation do not come close to offsetting the annual budget deficit and the amount of debt the Illinois government has incurred, it is reasonable to assume that Illinois will similarly increase the income tax rates and brackets in the future. Any tax increase will result in additional job loss and further out-migration.”

I don’t know whether the monicker “Fair Tax” is ironic or deliberately obfuscating. The name has been used for years by an organization backing a replacement of the federal income tax with a prebated sales tax—just about the opposite of Gov. Pritzker’s plans at the state level. If you go to Wikipedia’s article on “FairTax” or fairtax.org, that’s what you get.

I could be persuaded to accept a graduated income tax in Illinois if some changes were made to the proposed amendment: it should be self-repealing after five years if either a) the state’s population decreases over the next five years or b) it does not increase state tax revenue and broadening the basis for the tax should be put beyond the power of the legislature.