Why Illinois Needs to Rethink Its Flat Tax - NBC Chicago
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Why Illinois Needs to Rethink Its Flat Tax



    Gov. Pat Quinn insists that raising the state’s income tax is the only way to close our $13 billion budget gap. But House Speaker Michael Madigan won’t let him do it, and his opponent, Bill Brady, is an adamant opponent of tax increases.

    In fact, it’s politically impossible to raise the income tax in Illinois. That’s because Illinois is one of seven states with a flat tax. Everyone, from Oprah Winfrey on down to the shoeshine guy in the Merchandise Mart, pays the same 3 percent.

    That doesn’t mean taxes in Illinois are low. Chicago has a 10 percent sales tax. If you can’t fund the government through income taxes, you have to get the money somewhere.

    “We have the highest sales tax in the country,” says Sen. Kwame Raoul, D-Chicago. “What that effectively means for the working poor, is they pay a higher percentage of their income for city services.” 

    Raoul is the state’s leading proponent of a progressive income tax. He wants to establish a sliding scale, requiring high earners to pay a higher percentage of their income than the poor.

    “One, it would be politically easier” to raise the income tax, Raoul says. “Two, it gives you more flexibility.”

    His problem: the flat tax is mandated by the Illinois Constitution. It can only be overturned by a statewide referendum. Last year, Raoul proposed a resolution to eliminate the flat tax. It got 19 votes in the senate, far short of the 36 required to send an amendment to the voters.

    “During the debate, people started characterizing it as an income tax increase, when there was nothing about the rates,” Raoul says. “This is a simple discussion about removing an obstacle.”

    In fact, plenty of people would get a tax cut. In most states with a flat tax, the bottom rate is lower than Illinois’ 3 percent. High earners would get an increase. In every state with a flat tax, the top rate is higher than 3 percent.

    “It’s not that I’m trying to gouge the wealthy,” Raoul says. “It’s a matter of creating a fair system.”

    Illinois has to do something to escape from its fiscal mess. It can cut spending, which would eliminate tens of thousands of government jobs. Or it can raise income taxes, which would be an easier sell if the legislature didn’t have to raise taxes on everybody.

    “I think the fact that we’re hitting rock bottom makes the debate around income tax easier to have,” Raoul said.

    Easier, and necessary.