Reeder: Illinois income tax too high as it turns 44
By Scott Reeder firstname.lastname@example.org April 22, 2013 7:34PM
Updated: May 24, 2013 6:26AM
Forty-four years ago as of last week, Illinois began collecting a state income tax.
Folks from Cairo to Chicago filled out their IL-1040s for the first time in 1969, and the state began to transform.
And not in a positive way.
State government has ballooned during the last four decades, and the government’s thirst for more money has yet to be quenched.
Just consider that when the income tax passed, the initial rate was 2.5 percent. We are now paying double that.
But are we getting 100 percent better government today than we did in 1969?
Today, Illinois is floundering in a financial mess. The Deadbeat State is more than $9 billion behind in paying its bills, its five pension systems have a long-term unfunded liability of roughly $97 billion and its bond rating is the worst of any state in the nation.
As I’ve pointed out previously, Illinois’ problem isn’t one of revenue but of spending.
A tax not only raises revenue for government, it discourages certain behavior. Tax advocates freely admit the impact of a tax.
That’s one of the reasons they push for higher taxes on booze, cigarettes, soda, plastic bags, bottled water and a whole host of things they think are either bad for you or bad for the environment.
So what kind of conduct does an income tax discourage? Well, for starters, working.
It also penalizes risk-taking activities such as starting a business. And more important, it punishes success.
At times when the federal income tax rates have been lowered, the national economy has flourished.
But in Illinois, not only is our state government embarrassing us nationally and burying us in debt, our economy is in the dumps. The unemployment rate is 2 percentage points higher than the national average.
And now there’s a push to raise the state income tax beyond the 5 percent imposed just two years ago.
Proponents of the measure they call a “graduated income tax” or a “fair tax” contend that it’s more equitable than the existing flat tax because those who earn more would pay more in tax and vice versa.
However, such a tax is anything but fair.
The harder a person works or the wiser that someone invests, the more the bureaucrats in Springfield will penalize them with a higher tax rate.
Taxes need to be broad, low and stable. A progressive, or graduated, income tax is none of those.
“Under a graduated income tax, income tax rates would increase as family income rises,” state Rep. David McSweeney (R-Barrington Hills) said. “We need to be incentivizing work effort, investments and entrepreneurship and not punish families when they make more money.”
McSweeney is a sponsor of House Resolution 241, which opposes a progressive income tax in Illinois.
States such as Texas, Florida and Washington don’t have a state income tax, and their economies are among the most robust in the nation.
When I was a reporter in Las Vegas, several former Californians lived in my middle-class neighborhood. They moved there for the simple reason that Nevada had no state income tax, while California had some of the highest rates in the country.
High taxes encourage people to leave. Low taxes encourage them to stay.
Texas Gov. Rick Perry is well aware of this. That’s why he launched an initiative this month to try to lure businesses from Illinois to the Lone Star State. Among the reasons he is citing is that Illinois has a 5 percent income tax while Texas has none.
Illinois also has one of the slowest growth rates in the nation.
In 2011, Texas issued 97,450 building permits. Illinois issued 11,809.
The best way to reverse that trend is to lower the state income tax, not raise it.
Scott Reeder is a veteran statehouse reporter and the journalist-in-residence at the Illinois Policy Institute, a nonprofit research group that supports the free market and limited government.