For proponents of the measure, the amendment and the rates approved are all about raising more revenue without increasing rates on middle-income earners or making drastic budget cuts to state services, education and public safety.
Pritzker frequently notes he inherited a state government “hollowed out” by budget cuts from previous administrations and a two-year state budget impasse during which the state spent roughly $5 billion more than it took in each year, driving a backlog of unpaid bills up to $16 billion.
Pritzker has estimated the budget shortfall for the current fiscal year at $6.2 billion, as the COVID-19 pandemic has blown a hole in state finances. Without the graduated tax, which would be in effect for only half of the fiscal year, the shortfall could reach $7.4 billion, he said in April.
To fill that gap, the governor has left open the option of borrowing billions from the federal government and has lobbied for greater aid to states in another federal stimulus package.
But even before the pandemic, Pritzker pegged Illinois’ structural, year-after-year budget deficit at $3.2 billion, and he has framed the graduated tax debate as a choice between 15 percent across-the-board cuts to state government, a 20 percent flat tax hike or passage of the graduated rates.
On Sept. 24, Lt. Gov. Juliana Stratton said lawmakers “will be forced to consider raising income taxes on all Illinois residents by at least 20 percent, regardless of their level of income” if the graduated income tax fails. That would push the current tax rate to about 6 percent, and would require a simple majority vote in a Legislature dominated by Democrats with or without the passage of the amendment.
But opponents argue that without spending reforms, particularly to unfunded state pension obligations which exceed $137 billion, voters should not consider sending the state more revenue. They also note both graduated tax measures are devoid of any meaningful immediate property tax reforms. Property taxes are levied and collected locally, not by the state, and they fund such things as schools, local governments, fire departments and libraries.
Those in favor of the amendment argue the added revenue could make it easier to fully fund the evidence-based funding formula for K-12 schools, which – years down the line, they say – could alleviate property tax pressures by shifting funding responsibility from local taxes to the state.
But opponents are skeptical of what the added revenues would be used for, as the amendment and accompanying legislation contain no guarantees and the state’s pension burden continues to increase.
Opponents also point out that Illinois’ combined total tax burden – including state and local sales taxes, income taxes, property taxes and others – is the highest in the country, according to the personal finance website Wallethub. The graduated tax would only add to that, they say, claiming that it might drive high-earning residents from the state. Pritzker has said it is middle-income earners who have thus far been more likely to leave the state because, he says, the tax burden is “unfairly” distributed.
Proponents of the amendment, including Pritzker, cite a breakdown which shows the bottom 20 percent of Illinois earners pay 14.4 percent of their total income to state and local taxes, while the top 1 percent of earners pay 7.4 percent of their income in taxes. That’s according to a report by the left-leaning Washington D.C.-based Institute on Taxation and Economic Policy.