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Fair Tax

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  • State Senator Toi Hutchinson (D-Chicago Heights) argues on behalf of working families in Illinois as the Illinois Senate advances the fair tax on May 1, 2019.

  • Senator ManarIncludes income tax cut, property tax relief for working families

    SPRINGFIELD – Nearly all working men and women in the 48th Senate District would pay less in state income taxes under a historic overhaul that was approved by the Illinois Senate Wednesday.

    State Senator Andy Manar (D-Bunker Hill) voted for a package of measures that includes new income tax rates requiring millionaires to pay their fair share to the state, as well as tax relief for property owners and elimination of Illinois’ estate tax.

    “Anyone who makes less than $250,000 a year will get a tax cut under this plan. That’s nearly every single taxpayer I represent,” Manar said. “This is the right thing to do for people who find themselves working harder but taking home less. Those who have benefited from a robust economy can pay a little more to help bring stability to the state of Illinois.”

    Under the proposal, only the top 3 percent of Illinois earners would pay more in income taxes. Everyone who makes less than $250,000 a year would pay a rate of 4.95 percent or less.

    The package is part of a constitutional amendment that will require voter approval in 2020. The plan approved by the Senate Wednesday must go to the House for consideration next.

    Manar, who shepherded the state’s recent revamp of the school funding formula, sponsored the property tax relief portion of the package. Under this measure, as long as the state lives up to its responsibilities to adequately fund school districts, including lunch programs and student busing costs, there would be little need for districts to go to local property owners seeking tax hikes.

    Property tax relief has to be a priority for the state, Manar said, noting that his legislation gets at the root of what largely drives high property taxes across the state – funding for local school districts. In addition, it forces the state to own up to its responsibility of fully funding schools.

    “It’s time to turn off the spigot of property taxes and make state funding the predominant source of support for schools,” he said. “This is the next step toward bringing true equity to the funding of schools while acknowledging the property tax burden has to be reduced over time.”

    The package of legislation – the fair tax rates, elimination of the estate tax and property tax relief – are contained in Senate bills 687, 689 and 690. In addition, Senate Joint Resolution Constitutional Amendment 1 (SJRCA01) simplifies constitutional language about income taxes to allow for a fair tax while eliminating Illinois’ current outdated flat tax system.

    Income tax rates contained in the Senate proposal:

    SENATE RATE PROPOSAL

    Single Filers

    Married / Joint Filers

    Rate

    Income Range

    Rate

    Income Range

    4.75%

    $0 - $10,000

    4.75%

    $0 - $10,000

    4.9%

    $10,000 - $100,000

    4.9%

    $10,000 - $100,000

    4.95%

    $100,000 - $250,000

    4.95%

    $100,000 - $250,000

    7.75%

    $250,001 - $350,000

    7.75%

    $250,001 - $500,000

    7.85%

    $350,001 – $750,000

    7.85%

    $500,001 - $1,000,000

    7.99%

    Over $750,000*

    7.99%

    Over $1,000,000*

    *If over this income threshold, all income is taxed at 7.99% rate

    Corporate Rate

    Current Rate

    7.0%

    Adjusted Rate

    7.99%

    Applies to all corporate income.

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    As outlined by Gov. Pritzker in his budget address this year, we have three viable options to fix our state’s finances:

    • Raise taxes by 20% on everyone. In order to raise the needed revenue to pay down our bill backlog, we would have to raise taxes on everyone by 20% within our current flat tax system.

    • Make drastic, 15% across the board cuts to state agencies. If we are not going to raise revenue, we have to cut spending in order to pay down our bill backlog. The kind of cuts necessary to save that kind of money would be devastating to public safety, public education, transportation and social services.

    • Adopt a fair tax that raises taxes on only 3% of Illinoisans – the wealthiest, most prosperous among us. Under Gov. Pritkzer’s proposal, 97% of Illinoisans would either so no change in their tax rate or would see a decrease. Those who make less would be taxes less, and vice versa. Only the top 3% of earners in Illinois would see a modest increase in their tax rate, and we would bring in the revenue necessary to pay our bills.

    Why is a fair tax necessary?

    • After years of fiscal instability and with a $3.2 billion budget deficit this year alone, Illinois must act now to shore up our finances.

    • As a state, we can’t keep shortchanging students, undermining universities, decimating social services, watching our roads and bridges crumble.

    • With a flat tax in Illinois, lower-income may pay the same rate as higher-income people, but that amount places a greater burden on them than on those making more. A fair tax with lower rates for lower incomes and higher rates for higher incomes will bring tax relief for working families and produce stable and sustainable revenues in Illinois to get the state on stable financial footing.

      • Taking into account all taxes Illinois families pay, the lowest 20% of income-earners, or those making less than $21,800 a year, pay 14.4% of their income toward taxes. The top 1%, or those earning more than $537,800, pay only 7.4% of their income toward taxes.

      • This makes Illinois one of the most regressive tax states in the country – one of the Institution on Taxation and Economic Policy’s “Terrible Ten” states.

    • A fair tax combats growing income inequality by making sure the wealthy pay their fair share. Over the past decades, nearly all the income growth has been made by the top income levels. Nationally, income inequality is the worst it’s been since 1928 – the year preceding the Great Depression. The current tax system doesn’t allow Illinois to capture that growth because the same rate applies to high- and low-income earners.

    How do we implement a fair tax?

    • Currently, the Illinois Constitution prohibits the state from imposing a graduated income tax. In order to change that, three-fifths of both the Senate and the House must pass legislation that would place a question on the November 2020 ballot asking whether voters support a fair tax.

    • In order for the Constitution to be amended, the fair tax must receive support from either 60 percent of those voting on the specific question or a majority of all those casting votes in the election.

    • This means the current legislation (SJRCA 1 – sponsored by Senator Harmon) would not automatically change the Constitution if it passes. It would simply put the question of a fair tax on the ballot, allowing voters to decide.

    How do we set the rates?

    • SJRCA 1 does not set a specific tax rate structure; it only deletes the provision in the Constitution prohibiting a graduated income tax.

    • If the amendment is adopted following the process outlined above, the General Assembly may pass legislation setting specific rates.

    • Gov. JB Pritzker has announced proposed rates. These are being discussed with members of the General Assembly as part of ongoing negotiations to introduce legislation setting rates.

    Learning about the Fair Tax Plan:

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