States use two income tax models—a “flat” tax and a “fair” tax. Under a flat tax, the same tax rate applies to everyone, regardless of his or her income. Under a fair tax, taxpayers with lower incomes pay lower rates and taxpayers with higher incomes pay higher rates. The Illinois Constitution mandates that Illinois have a flat income tax.
A Better Illinois is a growing coalition of over 100 organizations that are working together to amend the Illinois Constitution to permit a fair income tax.
Illinois’s flat tax is an outlier when you look at the rest of the country. Of the 43 states with individual income taxes, 34 have a fair tax and only 9 have a flat tax. Even fewer—just 3—are mandated to have a flat tax by their state constitution.
On the surface, a flat tax may seem fair. After all, everyone pays the same rate. But taxpayers pay more than just state income tax; they also pay sales and property taxes. And the burden of those taxes is not equally distributed. In fact, when all three major state and local taxes are considered—income, sales and property—lower and middle-income taxpayers pay a much higher percentage of their income for state and local taxes than higher-income taxpayers.
For example, someone in the top 1 percent of taxpayers, with annual income of $500,000 or more, pays 5.3 percent of his or her income on state and local taxes. In contrast, a taxpayer right in the middle, with annual income of $47,000, pays 11.6 percent of his or her income on state and local taxes, and a taxpayer at the lowest income level, with less than $18,000 in annual income, pays 13.7 percent. This is the inequity created by the fair tax.
A fair tax also is needed to produce a sustainable level of revenue without over-burdening the middle class. Over the past 30 years, almost all economic growth has occurred at the higher income levels. For example, taxpayers with income in the top 10 percent have seen their real income grow by 23 percent, while taxpayers in the middle, at the 50th percentile, have seen their real income drop by 2 percent. The flat tax provision in the Illinois Constitution is a major cause of Illinois’s fiscal problems because it has prevented our state from securing adequate revenue from those at the upper income levels—the taxpayers who have been the beneficiaries of virtually all of our economic growth for the past three decades.
Supporters of a flat tax allege that a fair tax is a smokescreen to raise everyone’s taxes. This is nothing more than a scare tactic. A fair tax does not necessarily produce more, less, or the same overall amount of revenue; how much revenue it produces depends on the rate structure the General Assembly adopts by statute. All a fair tax does is permit income taxes to be set at a lower rate for lower income taxpayers and at a higher rate for higher income taxpayers.
Replacing the Illinois Constitution’s flat tax with a fair tax is wildly popular. According to polling, 77 percent of the state’s voters favor a fair tax over a flat tax.
For the amendment to the Illinois Constitution to appear on the ballot next November, 3/5 of the Illinois Senate and 3/5 of the Illinois House must, by May 4, 2014, vote in favor of putting it there. That takes 36 of 59 senators and 71 of 118 representatives. Once the issue of whether to amend the Illinois Constitution is on the ballot, it takes a majority of all voters in the November election, or 60 percent of those who vote on the amendment itself, for it to pass.
Resolutions to put a constitutional amendment on the ballot next November have been introduced by Sen. Don Harmon (SJRCA 40) and Rep. Naomi Jakobsson (HJRCA 33). Sen. Harmon’s resolution already has 24 co-sponsors, and Rep. Jakobsson’s already has 37.
During the 43 years since Illinois’s Constitution was adopted in 1970, there have been other, unsuccessful attempts to amend it to remove the flat tax requirement. But this is by far the most determined effort yet. Over 125,000 residents have signed a petition calling for a constitutional amendment that would make a fair tax possible.
As May 4 approaches, there will be growing pressure on our legislators to let the voters decide by putting the constitutional amendment to permit a fair tax on the November ballot.
We need you to take action to ensure that the flat tax amendment passes. Join the A Better Illinois coalition. Sign the online petition calling on our legislators to put the fair tax amendment on the ballot. Contact your state senator and state representative directly. Talk to, tweet, and send a Facebook message to your family, friends and neighbors. If you sign the petition, we’ll be back in touch with you as this develops. We need everyone working together to make this A Better Illinois.