Make no mistake, a progressive tax is a tax hike on you
New Yorkers began this week with a dire announcement from Gov. Andrew Cuomo. Their state’s highly progressive income tax and a federal tax change combined to blow a $2.3 billion hole in the budget.
“[The revenue shortfall] at this point … is as serious as a heart attack,” Cuomo said in a press conference.
“Tax the rich, tax the rich, tax the rich. We did. Now, God forbid, the rich leave.”
Listen up, Illinois.
A constitutional amendment filed Jan. 29 by state Sen. Don Harmon, D-Oak Park, would eliminate Illinois’ flat income tax in exchange for a progressive income tax. But he has not filed a bill telling Illinoisans what the rates would be. Gov. J.B. Pritzker backed a progressive tax during his campaign, but putting the amendment to voters would not require his signature. House Speaker Mike Madigan last year filed a resolution in favor of the progressive tax.
With the top 1 percent of earners providing nearly half the state’s income tax revenue, New York serves as an example of what happens when a state bases its budget on contributions from just a handful of wealthy people. It’s volatile. And at the end of the day, the families who can’t leave the state pick up the tab for those whose money is mobile. Calls for fairness are little consolation when you’re wondering where $2 billion to run the government went.
One reason for New York’s budget crisis was a federal tax change as part of the 2018 tax cuts, which capped the state and local tax, or SALT, deduction at $10,000. That meant high-income earners in high-tax states such as New York and Illinois no longer could use high property and income tax payments to alleviate their federal tax bill.
New York Comptroller Thomas DiNapoli noted SALT was a prime factor for the budget hole. “We’ve all heard anecdotally … of people who say they’re going to change their legal address, and I think these numbers show that in fact that is probably a big part of the picture,” he said.
Progressive tax proponents in Illinois talk a lot about “modernizing” the tax code. Is this the future Illinois wants?
The last state to swap its flat income tax for a progressive income tax — Connecticut in the 1990s — is another example of why Illinois should avoid a progressive tax like the plague. (Two states, North Carolina and Kentucky, have ditched their progressive tax structures for a flat income tax since then. And Colorado voters rejected moving to progressive rates last year.)
Connecticut lawmakers made all the same progressive tax promises Illinois lawmakers are making now, including that it would alleviate property taxes and serve as a middle class tax cut. Those promises were broken. And there’s no reason to believe Illinois politicians can keep them either.
In the wake of its progressive tax experiment, Connecticut continually has raised taxes on the middle class, maintains a chronic outmigration problem and finds itself in a financial situation that is just as dire as Illinois, running state budget deficits in 12 of the past 15 years and holding more debt per capita than almost any other state.
What does that look like for average Connecticut taxpayers?
Take a family of two teachers and two children, with the parents taking home the 2018 average Stamford Public Schools elementary school salary of $83,000 each. Assume their salaries have grown with inflation since 1999, when Connecticut’s progressive tax rates were phased in fully. That family’s statutory income tax bill is 17 percent higher today than it was then. So much for a cut.
What about property tax relief? Data from the Bureau of Economic Analysis show property taxes as a share of personal income in Connecticut have risen 35 percent since 1999. Another broken promise.
And remember Connecticut state finances are in worse shape today. The higher tax burden didn’t fix any budget problems.
Illinois lawmakers are selling a progressive income tax as a cure-all. But in states with overspending and debt problems, it just becomes part of the disease.
Political promises aren’t much protection for middle class pocketbooks.