Illinois Fair Tax

Illinois Fair Tax

The League of Women Voters of Illinois has advocated for a graduated rate income tax for the last 50 years. A Fair Tax would only increase taxes on those individuals and small businesses making more than $250,000 a year. With the Fair Tax, 94.4% of DuPage County residents will get a tax cut or pay no more than they do now.
Position In Brief: 

A Fair Tax means:

  • Fiscal Soundness. There’s a reason 33 states and the federal government use graduated rate tax systems:  graduated rate tax systems generate more revenue than flat taxes. Under a fair tax system, people with the greatest amount of resources fund a greater portion of the services all people and businesses rely on.
  • Core Services Investment.  Adopting the Fair Tax in Illinois is projected to generate $3.57 billion dollars annually, provide funding for priorities such as health care, public safety, social services, jobs and especially education.  Research shows that over the last 30 years, states that made the greatest investment in their education systems experienced the most growth in GDP and wages.
  • Equity. A Fair Tax system is based on the ability to pay. According to the Institute on Taxation and Economic Policy, currently, the bottom 20% of wage earners in Illinois have twice the state and local tax burden of the top wage earners. A Fair Tax will allow the state to apportion the burden more fairly.
  • Stability and Responsiveness.  Good tax policy allows for flexibility to design revenue structures to fit economic reality. Economic inequality, whether measured through the gaps in income or wealth between richer and poorer households, continues to widen.
  • Disposable Consumer Income.  The Fair Tax will keep taxes the same or give a tax cut to 97% of Illinoisans. Graduated tax rate systems leave more money in the pockets of lower-wage earners, who are likely to spend all of their money locally and stimulate the economy.

 

For decades, the state has kicked the can down the road, passing mounting debt to future generations. It is time to put the state on a steady path to meet its obligations with a fair income tax structure.

Amendment Wording on Your Ballot
At the top of the ballot for the November 3, 2020 general election, we will have the opportunity to amend the constitution to allow for a fair fax.  All it takes is our votes. The amendment language that will appear on your ballot is below:

Proposed Amendment to the 1970 Illinois Constitution Explanation of Amendment 
The proposed amendment grants the State authority to impose higher income tax rates on higher income levels, which is how the federal government and a majority of other states do it. The amendment would remove the portion of the Revenue Article of the Illinois Constitution that is sometimes referred to as the “flat tax,” that requires all taxes on income to be at the same rate. The amendment does not itself change tax rates. It gives the State the ability to impose higher tax rates on those with higher income levels and lower tax rates on those with middle- or lower-income levels. You are asked to decide whether the proposed amendment should become a part of the Illinois Constitution

For the proposed amendment of Section 3 of Article IX of the Illinois Constitution.

o YES
o NO 

 Resources for Your Review

Frequently Asked Questions

What is the Fair Tax?
The fair tax is about updating our outdated system to one that the majority of states and the federal government use.  It’s about ensuring we have a tax system that is fair and works for everyone, not just the wealthy few.

Will Voting Yes to the Fair Tax raise my taxes?
The legislature will have the same power if the Fair Tax is passed as they do now. Without the fair tax, taxes would have to be raised on all Illinoisans by at least 20% to address our structural deficit. With a Fair tax, the wealthiest will shoulder this burden.

How will this affect middle-class families?
The Fair Tax means at least 97% of Illinoisans will see no income tax increase, and many middle and lower-income families will actually see a tax cut. Only those making more than $250,000 a year will see a tax increase. It is likely that without the Fair Tax, taxes on the middle class will go up.  If we do not pass the Fair Tax, and are stuck with the flat rate, taxes will have to be raised on all Illinoisans, from 4.95% to 5.95%, or a 20% increase. The Fair Tax will spare middle-income families, while raising needed funds.

Many people are upset about their property taxes. Will the Fair Tax result in any lowering of property taxes?   
Property taxes in Illinois are too high, and the Fair Tax will help. Our current tax system is not adequately funding schools. Our education system only gets about 25% of its funding from the state, while the national average is about 50%, so local communities must fund schools through property taxes. The Fair Tax will generate additional revenue every year for our education system, lessening the burden on communities and eventually lowering property taxes.

Can’t we just cut spending?
We’ve tried that since 2000, and it didn’t work. Illinois is in a massive budget crisis, and critical services we rely on are drastically underfunded.   Cuts have left our roads and bridges crumbling and our education system decimated. Cutting additional spending will only make this worse and cause more middle and lower-income families to leave the state in search of better opportunities.

Can we trust Illinois politicians to spend the additional money wisely?
Citizen engagement is the best way to ensure that we can trust the politicians we elect.  In the short-term, the people of Illinois still need services, schools, and especially healthcare during this pandemic.  Continuing to underfund the state will only hurt the people who need help, weaken the business climate, and undermine education.  This is a two-step process:  first, get the revenues we need.  Second, engage in the political process to get to know who represents you -- and make your preferences known. 

Small businesses are already hurting for the impact of the Coronavirus crisis and can’t afford a tax increase. How would a Fair Tax impact small businesses? 
We agree! Unless you are a small business owner making more than $250,000 a year in profit, you will not see an income tax increase under the Fair Tax. Businesses want a stable fiscal environment, an educated work force, and a place where employees want to live, work, and raise a family. The Fair Tax will help make that a reality. 

How do graduated taxes play out in others states that have this tax structure?
Fair Tax states are twice as likely to cut taxes on the middle class. Ninety-three percent of the states which have progressive income taxes have seen no increase in income taxes on the middle class in the last 20 years. It is more likely that the middle class will see an increase in their income taxes if this ballot measure does NOT pass than if it does. 

Is this the right time for income tax reform in Illinois?
The Graduated rate income tax is uniquely suited for this time because it affects only those with incomes above $250,000. So individuals and businesses affected by the health and economic crisis of the pandemic will not pay higher taxes. At the same time we have an increased need to provide services for those who have been affected, so we need additional revenue. This is needed now more than ever.   

What will wealthy people do if their taxes are raised?
The same thing they are doing now. Our top income earners are running successful businesses here. Taxes don’t affect where the wealthiest people live.  Just look at California – they have more millionaires than most other states and their top tax rate is 13%.  Middle and lower-income Illinoisans have been fleeing the state for years after funding for education was cut. The Fair Tax will bring in much-needed revenue to get our state back on track and keep these families in Illinois. 

Will businesses benefit from a fair tax?
Yes. Ninety-nine percent of businesses in Illinois are small businesses, organized as sole proprietorships, partnerships, or S corporations, and they pay income taxes on their profits as pass-through entities on the individual income tax returns of their owners and partners.  These businesses will pay lower income taxes or the same under the fair tax unless their net profits are above $250,000. 

Which small businesses in Illinois make above $250,000 in profit? Very few. The median income for self–employed individuals at their own incorporated businesses was $52,990 in 2018. For self– employed individuals at their own unincorporated firms, median income was $25,735.   Farm income varies year to year as weather and prices jump around, but the average net income on Illinois farms has only been above $250,000 two years in the last two decades, and the projected average net farm income for 2020 is below $60,000 per farm.   Only about 189,000 individual tax filers last year reported income that under the fair tax would cause an increase in their taxes, and only some of those were small business owners; so it is safe to say that 97% of small businesses will not see a tax increase, and some may see lower taxes.

Large corporations, including banks, insurance companies, and publicly traded corporations will continue to be taxed at a flat rate.  Their flat rate will increase from the current flat rate of 7% to 7.99%. All businesses, large and small, want a stable fiscal environment, an educated work force, and clean and vibrant communities where employees want to live, work and raise a family. The Fair Tax will address our financial situation and bring fiscal stability to Illinois, while generating additional revenue to fund our education system and other critical programs. 

Issues: 
League to which this content belongs: 
Roselle/Bloomingdale