Daily Debunk: Flat tax drags on revenue

It deliberately makes tax hikes difficult, while Fair Tax taps economy where it’s expanding

The sculpture outside the Illinois Department of Revenue would seem to suggest that a flat tax leaves the state “zero” wiggle room when it comes to raising funding — deliberately so, say opponents of the Fair Tax Amendment. (Shutterstock)

By Ted Cox

Trust Greg Baise, treasurer of the Coalition for Jobs, Growth & Prosperity, to make the case for a flat tax setting the rate the same for all taxpayers.

In an online debate on the Fair Tax Amendment earlier this month, Baise went back to the writing of the state constitution in 1970 to explain why it mandated a flat tax. “The flat tax has been a provision, as the founders who put this into the 1970 constitution” intended, he said, to act as “a regulator in trying to keep those taxes at a level, and make sure that taxes are only raised when it’s absolutely necessary to fill legitimate revenue needs.”

We’d challenge the notion that these were “founders” creating a new Illinois Constitution, as the state had just celebrated its sesquicentennial before the 1970 constitutional convention. Instead, we’ll point out that, in adopting a state income tax, convention delegates agreed to a compromise that would make it difficult to raise taxes at all once they had been imposed.

In that, we’ll grant, it has been all too successful, leaving state government hamstrung to raise revenue, even when it’s “absolutely necessary to fill legitimate revenue needs.” State legislators and governors, both Democrat and Republican, have resisted tax hikes ever since because they knew it would lead to a reckoning in the next election.

And the state’s dire fiscal condition, again lamented by both conservatives and liberals, has been the result. The so-called pension holidays, again declared under both Republican and Democratic administrations, were a direct result of politicians playing shell games with revenue and trying to turn up funding where there wasn’t any to be had. In taking state pension contributions and spending them elsewhere, they created the pension backlog we’re dealing with today.

That was a direct result of mandating a flat tax — along with ever-declining eduction funding, as well as persistent staffing cuts in essential (and popular) government programs like the Illinois Environmental Protection Agency and the Department of Natural Resources.

And Illinoisans are now attempting to deal with that difficulty, in part, by passing a graduated income tax that taps the economy where it’s growing and most vital, among only the top 3 percent of taxpayers making more than $250,000, while the vast majority of Illinoisans, 97 percent, pay the same or less than the current 4.95 percent flat tax.

“In the absence of that, where is (revenue) coming from?” Quentin Fulks said in the same online debate. The executive director of the Vote Yes for Fairness group advocating ratification of the Fair Tax Amendment immediately added, “What are the options? I’m all for having debates about what we should be doing, but the simple fact is opponents continue to degrade any option that is going to help lower- and middle-income families in this state, because none of them are perfect, while not offering any alternatives or options.”

“We talk about 4.95 as if it’s some number that’s just strategically fair. … 4.95 percent on $1.5 billion is not 4.95 percent on $20,000. And that is what the crux of this issue is.”

Quentin Fulks of Vote Yes for Fairness (Zoom)

That led to Baise attacking the notion of raising taxes in a recession, saying it would increase “the burden that’s going to be placed on job creators.”

State Sen. Sue Rezin of Morris echoed that, quoting President Obama during the Great Recession a decade ago as saying, “You don’t raise taxes in a recession.”

We’d like to point out, however, that the actual Obama quote begins with the proviso that “normally you don’t raise taxes in a recession.” And that qualifier makes a considerable difference.

Again, the Fair Tax Amendment allows a progressive income tax that would only raise taxes on those making more than $250,000, to a top rate of just under 8 percent for those making more than $1 million a year. And we’ve said it before that we said it before, and we’ll say it again that we’re saying it again: anyone making more than $250,000 a year in the COVID economy — whether it be a farmer or a restaurateur or a billionaire investor like Kenneth Griffin — deserves to pay a little bit more than those struggling to make ends meet or just keep their heads above water financially in the pandemic.

Fulks put it best. Defending Gov. Pritzker putting his own income — and money — on the table in pushing for the Fair Tax, Fulks said, “What I find incomprehensible is how an individual that made $1.5 billion alone last year is simply saying that they don’t want to pay a few percentage points more,” meaning of course Griffin, who has put $54 million of his own money into defeating the Fair Tax Amendment, because it would have cost him an estimated $45 million extra in taxes last year alone if it had been in effect.

“It’s not fair,” Fulks said. “We talk about 4.95 as if it’s some number that’s just strategically fair. … 4.95 percent on $1.5 billion is not 4.95 percent on $20,000. And that is what the crux of this issue is.”

Former state Sen. Daniel Biss chimed in to say taxing those who are prospering is exactly the way to raise revenue in an economic downtown. “What’s happened during COVID?” Biss said. “Millionaires and billionaires have made a bunch of extra money. They’re wealthier than they were before the pandemic began. Most people are hurting. And the state has a huge fiscal problem. So, quite frankly, why now? It’s a perfect match for the situation that we find ourselves in.”

He added, “This is needed now even more than it was needed before,” during what he called the “50 years of error” stemming from the 1970 state constitution and its demand for a flat-rate income tax.