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Wealth tax plan pushed in Springfield

Crain's Chicago Business

Tuesday, January 24, 2023  |  Column  |  Greg Hinz

With plans for a second try at passing a graduated income tax in Springfield facing an uncertain future, an Illinois lawmaker is proposing a different way to squeeze revenue out of rich people—really rich people.
 
Under a proposal being introduced by Rep. Will Guzzardi, D-Chicago, anyone with a net worth of at least $1 billion would have to pay 4.95% of it off the top to the state each year regardless of whether investment markets are rising or falling and notwithstanding underlying economic conditions. The tax on wealth—specifically on unrealized capital gains—is likely to be controversial, even in Democratic-controlled Springfield. But it’s part of a larger move nationally in which legislators in blue states are acting on their own in the absence of progress in Washington on, for instance, taxing carried interest and other lucrative devices used by a small segment of the population.
 
“The bill’s prognosis is good,” said Guzzardi, whose measure also will be sponsored in the Senate by Sen. Robert Peters, D-Chicago. “The pandemic has only deepened the already wide economic disparity in this state. We need to act.”
 
Guzzardi rejected the notion that his wealth tax is in some ways similar to the much-hated property tax, which requires the owner of an asset to pay up each year whether or not they’ve sold their land or building and have the needed cash on hand.
 
“The property tax puts an enormous burden on a lot of people that have a hard time making ends meet,” said Guzzardi, who represents a portion of the mid-Northwest Side. “But people with assets of $1 billion or more, I’m confident they’ll have the scratch to pay the bill.”
 
Guzzardi estimated his measure will pull in $200 million to $500 million a year, even after last year’s departure to Florida of the state’s wealthiest resident, Citadel’s Ken Griffin. He said proceeds would be dedicated to three purposes, all on the spending side: child care services, affordable housing and public education.
 
Key details on the as-yet-unfiled bill are not yet available, including to what extent taxpayers would be able to offset investment gains with losses, like depreciation. Guzzardi said he expects the Illinois Department of Revenue will write rules detailing such matters.
 
Illinois is one of eight states including California and New York in which Democratic lawmakers are introducing legislation to impose a state wealth tax in the absence of federal rules. That absence allows many partnerships, real estate holders and other wealthy individuals—such as former President Donald Trump—to pay little if anything in federal taxes even though they enjoy great wealth.
 
Earlier, another Illinois lawmaker, Sen. Rob Martwick, D-Chicago, said he soon plans to introduce plans to revive a graduated income tax. Such a constitutional amendment was rejected by voters in 2020, but Martwick said he may tweak the measure to gain more backing.