The defeat of the Fair Tax Amendment to the Illinois Constitution is a devastating blow to progressives who hoped to end the archaic and regressive tax system in Illinois that favors the rich.
However, there is still an opportunity to create a progressive income tax system through legislation without amending the Illinois Constitution. The Illinois Constitution prohibits anything other than a flat tax rate. But it does not prohibit changes in other factors such as the size of the personal exemption or a standard deduction, a factor that can have a similar effect on taxation. You don’t need a progressive tax rate in order to have a more progressive tax system.
If Illinois joined 10 other states in providing a standard deduction of $12,400 to match the federal taxes, it would provide roughly a $500 tax cut for every taxpayer who used it. To offset the lost tax revenue, Illinois should raise its flat tax rate by 1% to 5.95%, allowing the state to maintain a flat tax while providing a tax cut far larger than the Fair Tax plan to everyone making less than $50,000 a year and increasing taxes on the wealthy.
Quentin Fulks, chair of the Vote Yes for Fairness group that sponsored the Fair Tax proposal, declared: “Now lawmakers must address a multibillion dollar budget gap without the ability to ask the wealthy to pay their fair share.” That’s not true. Lawmakers can and must create a more progressive tax system in Illinois even within the constraints of a flat tax.
This progressive approach to taxation is clearly constitutional. The Illinois Constitution only requires income taxes to have a “non-graduated rate.” It explicitly allows for “reasonable” exemptions and deductions. No one could challenge a standard deduction that matched federal levels (and 10 other states) as unreasonable. If Illinois adopted the federal standard of a $12,400 deduction for an individual, this state would move toward a much more progressive tax system without having to change the Illinois Constitution.
During this time of financial crisis that particularly is punishing the poor, lawmakers have an obligation to improve our tax system and make it more progressive. Out of all the states with an income tax, only six have a lower combined personal exemption and standard deduction than the $2,325 in Illinois for 2020.
In September, Lt. Gov. Juliana Stratton warned that without the Fair Tax, Illinois might need to raise the flat income tax rate by 20% to 5.95%, but feared this possibility: “We all know that our middle-and lower-income families cannot withstand a 20% tax increase, and it will only serve to deepen the dramatic inequities that we already see across the state.”
Establishing the federal standard deduction along with a one-point increase in the tax rate would aid the poor people of Illinois with a tax cut during this pandemic, help reduce some of the dramatic budget cuts being planned, and make a tax increase far more politically palatable because it would be paired with a more progressive tax system.
Unfortunately, opponents of the Fair Tax amendment pursued a dishonest campaign to convince voters that the amendment would do the opposite of what was planned, and increase taxes on the working and middle classes. Hedge fund manager Kenneth Griffin, the wealthiest resident of Illinois, invested $46.75 million in the effort to stop the Fair Tax. The Chicago Tribune editorial board and other opponents of the Fair Tax undermined the public debate by falsely claiming that voters could not “trust” politicians and that the Constitutional Amendment would be used to make the poor pay a higher tax rate because legislators could “set different rates on all, not just the rich.”
These attacks, and the large size of the tax increase, helped sway many voters to oppose the Fair Tax. But a more modest progressive tax proposal, without the complications of changing the Constitution, would have support from the majority in Illinois. Considering that 45% of Illinois voters supported the more extreme Fair Tax, passing legislation to increase taxes on the rich by only one-third of the Fair Tax plan (and lower than the top tax rate in 20 states, including Wisconsin) would be a compromise most Illinois voters would support, especially with a tax cut for the working poor. Surveys over the past decade have found that two-thirds of people in Illinois support a progressive income tax.
The Constitutional Amendment failed because of overwhelming opposition in Republican districts, over 80% in some counties. For most Democratic members of the General Assembly, their constituents wanted the Fair Tax. A modest progressive tax system created by establishing a standard deduction matching the federal level would be a reasonable compromise, and Democrats in Illinois should give the people what they want.
The Fair Tax is dead. But a fairer tax system is still possible.
John K. Wilson is the co-founder of the Evanston Literary Festival and the author of eight books, including Trump Unveiled: Exposing the Bigoted Billionaire.