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Talk of new graduated tax proposals resurface; Gov. Pritzker not 'focused' on them

State Journal Register

Monday, January 23, 2023  |  Article  |  Patrick Keck

The failed graduated tax ballot measure from 2020 could make a reemergence in the 103rd Illinois General Assembly following reports that a Chicago Democratic legislator would lead that effort.

State Sen. Rob Martwick, D-Chicago, discussed the possibility in an interview with The State Journal-Register and said the need for the measure was perhaps greater almost three years after the vote. The measure failed with 53.3% of voters statewide rejecting the proposal and about 63% opposing it in Sangamon County.

Changing the state's income tax system has been a priority for the Chicago-based legislator since he first ran for office in 2012 in the 19th Illinois House District.

Taking on the state's pension debt, a total reaching $139.7 billion as of June according to the state Commission on Government Forecasting and Accountability, and funding education requires the proper revenue to do so. What the state lacks currently, Martwick said, are the funds.

"We don't have the money to do it," he said.

Beyond the long-term impact a graduated tax would have comes the more recently revealed economic harms of COVID-19. These hardships have been felt especially by the middle-class, the senator said, with those earning $75,000 to $150,000 having the "highest overall tax burden in the country."

A graduated state income tax would apply different rates to different income levels. The state’s current 4.95% flat income tax applies the same tax rate to all income levels, from a few thousand dollars to hundreds of millions. Voters would need to approve an amendment to the Illinois Constitution before a graduated state income tax could be enacted.

Martwick's proposal was still being written and would be different from the original, but Martwick said the middle-class would benefit. He acknowledged it was possible that action does not happen during the current General Assembly.

"People talk about leaving the state, well, newsflash, the vast majority of people who leave the state are middle-class people who are over-taxed and underserved," Martwick said.

Pritzker was asked about the potential revival during a recent press call while he attended the World Economic Forum in Switzerland.

A prominent backer of the original measure, the governor said he was not "focused" on a graduated tax system for this session, and instead reiterated the efforts of balancing the budget and closing corporate loopholes in his prior term as governor.

"Now I think we need to focus on how we can address bringing down property taxes, for example, and making some permanent change to bring down some of the tax rates," he said, noting that running surpluses are what tax reductions possible.

It was a different tune from the governor than in 2019 when he signed SB 687, which would have gone into effect with the voters' approval in the November 2020 election.

Pritzker also invested $58 million of his own money into the Vote Yes For Fairness ballot initiative committee backing the proposed amendment, according to campaign finance records. The committee is no longer active.

Billionaire Ken Griffin, founder and chief executive of The Citadel hedge fund, also contributed nearly $54 million to the Coalition to Stop the Proposed Tax Hike Amendment -- the funding counterweight to VYFF. He has however since left the state for Florida.

Getting billionaires on his side was not as important as getting the general public behind his proposal, Martwick said. That means convincing voters that this will be a positive change and avoid cuts to services typically seen during times of economic distress.

"For those people that say 'Well, I'm against this,' I would say this is my solution to an overtaxed middle-class and a pending financial catastrophe for the next generation," he said. "What's yours?"

Republican, business in opposition

Republicans voted against the bill during the 101st General Assembly, which placed the issue on the ballot, and rallied against leading up to the election. The Illinois Chamber of Commerce was also active in its opposition and funded a study that found the tax would shrink the economy and cost jobs.

News of a revitalized effort for a graduated tax was again met with disdain from the GOP.“First they voted to give themselves self-congratulatory pay raises, now Illinois Democrats are talking about reviving Governor Pritzker’s rejected tax referendum to help pay for them,” said Illinois Republican Party Chairman Don Tracy in a statement. “If the past week is any indication, we’re in for two years of massively out-of-touch overreach by Illinois Democrats, that sadly Illinois voters will be asked to foot the bill for. I don’t recall a single Democrat campaigning on these issues last fall.”

The Illinois Policy Institute, a conservative political think tank, also claimed the graduated tax income would allow the state to tax retirement income. Martwick noted IPI made similar arguments with the recently passed Workers' Rights Amendment with the claim it would increase property taxes. He said his tax proposal would not permit the state to tax retirees.

Joining the fray

If a proposal was successful, Illinois would join fellow midwestern states Minnesota and Wisconsin with graduated tax systems. Other states like Florida and Texas do not have state individual income tax.

Massachusetts became the most recent state to enact such a tax system in November 2022 when voters approved what's being called a "millionaire tax." Earners of more than $1 million annually face an additional 4% tax on top of the state's current flat income tax of 5%.

Martwick noted that there were other Illinois proposals in the works, including a wealth tax, and he was "all ears" to any proposal that could move the needle in the state's financial issues.