Who is that masked man?


Things bad begun make strong themselves by ill.

Illinois residents dodged a bullet on Tuesday when voters refused to change the Illinois constitution to allow state income tax rates to vary by income. Currently the constitution requires a flat income tax rate and the current rate is 4.95 percent. That means that if the government wants to raise income tax rates, it must do so for all income classes. That puts a brake on the legislature.

About 55% of Illinois voters voted against the change. That’s a more overwhelming victory than it looks because the change required a 60% vote to pass (or a simple majority of all of those voting in the election.)

Governor Pritzker’s (pictured above) and the Democratic legislature’s plan, had the measure passed, was to cut the rate very slightly (by at most 0.2 percentage points) for joint filers with income below $250,000 and single filers with income below $100,000 and to raise it for everyone with income higher than that. It would have reached a peak of 7.99% on income over $1,000,000 for joint filers and on income over $750,000 for single filers. That likely would have caused an even greater exodus of high-income people from Illinois than the current rate of exodus.

Similar attempts to impose a graduated rate structure in Massachusetts have also failed. The flat income tax rate there is 5.0%.

Once the flat tax barrier is breached, marginal tax rates at all real income levels tend to rise over time. I wouldn’t be surprised if a fair a number of voters in Illinois understood that.

Interestingly, just in my adult lifetime a number of states have adopted an income tax and the rate started low but went high because it was not constrained by such a constitutional provision.

New Jersey, for example, adopted an income tax in 1976, with two rates: 2.0% for income below $20,000 and 2.5% for income above $20,000.

By 2018, the marginal tax rate on singles with income between $35,000 and $40,000 was 3.5% and on married couples filing joint with income $50,000 and $70,000 was 2.45%.

$20,000 in 1976 dollars translated to $88,000 in 2018. So almost everyone was paying a higher rate in 2018 than in 1976. And the top two rates were 8.97% and 10.75%.

Similarly, Connecticut adopted an income tax in 1991, with a flat tax rate of 4.5%. Now the lowest rate is 3% and applies only to income below $10,000 for single payers and below $20,000 for married payers filing jointly. Everyone else pays rates that are higher than the original $4.5%. The rates range from 5% to 6.99%.