Fair Tax: Fundamental Reform, A Tax Cut For Large Majority Of Illinois Citizens

The debate on how to best fix Illinois’ beleaguered economy and pending budget crisis involves a bevy of scenarios, some of which include unprecedented cuts to education, social services, and other vital priorities. Meanwhile, wealthy out-of-state right wing groups continue to pour money into Illinois to smear a Fair Tax proposal – which would actually stabilize our state’s budget and put more money in the hands of the middle class. 

Last week, the Daily Herald published an article that claimed residents in the Chicago suburbs “would pay more” under a Fair Tax, with lower tax rates for lower incomes and higher rates for higher incomes. The piece seeks to divide suburban voters – whose median incomes are slightly higher than Illinois’ average median income – by suggesting they’ll bear the burden of replacing Illinois’ antiquated, unfair flat tax with a modern Fair Tax used by 34 of 41 states that tax income, along with the federal government.

However, as Rich Miller at Capitol Fax points out:

“The first thing you really need to understand about a graduated tax is that once you reach a higher tax threshold your increased tax rate does not apply to your full income. It applies only to the income above your new rate level.”

Retiring Representative Naomi Jakobsson presented one potential rate structure, which has repeatedly been used as a bogeyman by Fair Tax critics, who have stopped just short of claiming a Fair Tax would plunge Illinois in to a 1930’s-style Great Depression. The reality though, is that Jakobsson’s proposal is not attached to any legislation currently being debated in Springfield.

At present, the legislative debate surrounding a Fair Tax is whether or not the voters should have a right to decide for themselves in November. A Better Illinois is still studying the best way to implement a Fair Tax with input from a bipartisan group of academics, policy experts, and other public officials.

While we do not endorse the rate structure floated by Rep. Jakobsson, which is actually far less progressive than what we believe will ultimately be attached to a Fair Tax, running the numbers for this “doomsday scenario” that critics use as a straw man is a valuable exercise. 

Even using the Jakobsson rates the extreme right claims will produce a “doomsday scenario” – with all their accompanying end-of-the-world rhetoric – the reality is that every single suburban county listed in the Daily Herald piece would pay less in taxes than they currently pay.

Critics of a Fair Tax dishonestly use a future scheduled 25% across-the-board tax cut to argue the “current” tax rate is 3.75%, not the 5% people actually pay today. They’re debating a year into the future, assuming decisions about how Illinois will deal with our impending fiscal cliff have been made exactly as they’d want them – with draconian cuts to vital services, the likes of which Illinois has never seen before. That debate is far from over, but more importantly, the proposed Fair Tax would fundamentally restructure our tax system in Illinois, further demonstrating their argument as a nonsensical, apples-to-oranges comparison.

Fair Tax critics are also saying something wildly out of step with the will of the people of Illinois—that minimum wage workers and middle class families shouldn’t get a tax cut unless millionaires do, even though the lower and middle income families pay a tax rate of two to three times more than the very rich, when factoring all state and local taxes paid.

A Fair Tax, with lower rates for lower incomes and higher rates for higher incomes, would offer tax relief – not a tax increase, but a tax CUT – for the overwhelming majority of Illinois families.