Local Editorials | Northwest Herald

Flat tax rates the new, new thing in states’ revenue policy

Gov. JB Pritzker had billions of reasons to celebrate Chicago businessman Ken Griffin’s recent announcement that he’s moving himself and most of his employees to the more welcoming business climate in Miami.

Now, when it comes to campaign spending, the multibillionaire governor can spend multiple millions of his own money on political campaigns without having to worry that Griffin will match him dollar-for-dollar.

Although Griffin had only limited success opposing the governor’s candidates and policies through his campaign donations, he did have one titanic victory that continues to enrage the governor.

Griffin donated many millions to the 2020 campaign opposing Pritzker’s proposed progressive income tax amendment to the Illinois Constitution.

The governor wanted the measure to become law so he and his supporters in the General Assembly could dump the Illinois Constitution’s flat-tax mandate and replace it with multiple rates for multiple levels of income.

The proposed amendment was the first step in what would have been endless legislative fiddling with income-tax rates levied to dramatically increase revenue needed to fund Pritzker’s ambitious social-spending plans.

Voters’ decision to reject the proposed amendment leaves in place Illinois’ flat income tax rate – currently 4.95%.

Ironically, it also leaves Illinois with the same flat-tax policy that other states are adopting as a means of increasing their attractiveness to new residents and new businesses.

All the states surrounding Illinois, with the exception of Wisconsin, have adopted or are effectively transitioning to flat tax rates.

Iowa is moving to a flat rate of 3.9% by 2026. Michigan has a flat rate of 4.25%. Indiana has a flat rate of 3.23%. Kentucky has a flat 5% rate, while Missouri retains multiple rates, with a top bracket of 5.4% on $8,584 in income.

A recent Wirepoints study indicates Arizona is headed to a 2.5% rate while Georgia will transition to 5.49%, both in 2024. To become effective, those two state must meet specific criteria justifying the move.

A number of states, of course, retain progressive rates that increase along with income. California and New York are the best examples with rates that go well into double digits for higher income earners.

But the trend toward flat rates is clear. The last state to abandon a flat rate for progressive rates was Connecticut in 1996. Whatever the state hoped to achieve has not come to fruition because Connecticut, like Illinois, is one of the most financially troubled of the 50 states.

Expert opinion, of course, varies widely as to which approach is best. Progressive-rate advocates say it’s only fair for those with the highest income be taxed at higher rates. Those on the other side argue that flat rates generate economic growth that benefits everyone.

One thing, however, is for sure. Flat rates pose a serious disincentive to revenue-hungry public officials.

Why? To raise income taxes, they must raise them on all income earners, and that poses a severe political problem.

It’s much less difficult to pick out select segments of taxpayers for tax hikes, one group one year and another two years later. Reduced numbers of affected taxpayers reduce opposition at the polls.

In that sense, the flat tax is the taxpayer’s ally. Maybe that’s why more and more states are moving in that direction.

Champaign News-Gazette