Daily Debunk: Raising taxes in a recession

Normally we’d agree it’s bad policy, but the fair tax targets money where it’s actually growing, even in an economic downturn

The 1982 recession under President Reagan was made worse by a tight money policy intended to quash inflation at the same time. (Wikimedia Commons/Billy Hathorn)

By Ted Cox

You hear it all the time. You can’t raise taxes in a recession.

And normally we’d agree with that. But the fair tax proposed by Gov. Pritzker and approved last year by the General Assembly, sending the matter to voters this fall, isn’t your garden-variety tax hike, even though its opponents might try to depict it as such.

You hear that all the time too, about the “tax hike” on the ballot this fall. Do we have to repeat the basic facts?

The Fair Tax Amendment at the top of the ballot — in voting that is already underway in parts of the state — does nothing but change the state constitution to end its requirement for a flat tax, applying the same tax rate to everyone, and instead allows a progressive income tax, with higher rates for the top brackets among those who can afford to pay a little bit more.

The tax brackets set by the legislature last year cut taxes or leave them level for all those making $250,000 or less — 97 percent of Illinois taxpayers. Only those making more than that pay a higher rate, up to a top tax bracket of just under 8 percent for those making $1 million a year.

We understand, times are tough. The U.S. Department of Labor just announced Thursday that another 870,000 idled workers nationally filed for unemployment benefits last week. While new Illinois claims continued to drop, down 4,000 to 23,000 in a week, claims for expanded federal benefits under the Pandemic Assistance Program rose slightly. According to the Labor Department, 26 million U.S. workers remain on some form of unemployment insurance in the pandemic.

Not to pile on, but the Illinois Department of Employment Security released a separate report Thursday finding that — to no one’s surprise — employment was down in all 14 metropolitan areas across the state from this time last year.

Yet here’s the thing. The fair tax raises the tax rate only on those making more than $250,000 and, as we’ve stated before, anyone fortunate enough to be making more than $250,000 a year in this pandemic or the recovery extending into next year ought to be willing to pay a little bit more.

Yes, it removes money from the overall economy, but the revenue better enables the state and local governments to keep police officers, firefighters, and teachers employed, while not coincidentally funding essential services, including that unemployment insurance so desperately needed by those out of work. That money goes right back into the economy.

By the way, those politicians calling the fair tax a “tax hike” are typically the ones insisting that the state budget be balanced. So guess what, if you slash services across the board you remove still more money from the economy, and then the only recourse to balance whatever deficit remains is a genuine tax hike on everyone under the current flat tax.

Lt. Gov. Juliana Stratton stated that Thursday, and some media outlets made a big deal out of it as a threat to voters, but it’s nothing new by any means. Gov. Pritzker said the exact the same thing 18 months ago when he first laid out his proposal for a fair tax.

In hard times, the only sensible tax policy is to tax money where the economy is growing, and that is exactly what a progressive income tax does, especially under the brackets established by the Illinois legislature.