Graduated tax opponents say small business will suffer

An online panel discussion hosted by the Lincoln Forum about the proposed constitutional change to the state's income tax law focused largely on the effects to business owners and workers.

Opponents of the graduated income tax proposal on the Nov. 3 ballot believe small business owners would be hardest hit if the initiative is approved by voters. The effects might push owners to relocate across state lines, they warned Wednesday.

"Illinois will see a very high corporate rate and crushing rate on smaller businesses like farmers," said Greg Baise, treasurer of the Coalition for Jobs, Growth & Prosperity. "The reality is the burden is going to be on job creators."

But supporters of the income tax rate change plan contend Illinois' current flat income tax rate puts a greater burden on the working class now than wealthier residents will feel if voters favor the proposal.

"Our tax system is tilted in favor of the very wealthy and against the middle class and working poor," said Daniel Biss, a Democratic former state senator from Evanston. "What we have in front of us is an opportunity after 50 years of error to take a situation where we are an outlier and bring ourselves in line with the overwhelming majority of other states."

The graduated income tax plan would allow for increasing tax rates on various levels of income as opposed to the blanket 4.95% income tax rate imposed on earnings in the state now. Of the states with an income tax, 32 have some form of graduated rates, as does the federal government. Currently, the Illinois constitution prohibits any type of income tax rate other than a flat rate.

Rates were approved by the state legislature last year. The initiative was part of Gov. J.B. Pritzker's campaign platform. He estimates 97% of taxpayers will see a reduction in the amount of income taxes owed or they will pay the same amount. Meanwhile, the top 3% will pay an additional $3.5 billion in income taxes.

Opponents of the graduated income tax plan say the constitutional change is a Trojan Horse that will allow legislators greater flexibility in imposing tax hikes on smaller segments of the population.

"They can pick and choose the income brackets to raise taxes in and this way it doesn't make everyone angry at once," said state Sen. Sue Rezin, a Republican from Morris. "We want to make sure we don't give more power to Springfield and continue to protect taxpayers."

If the measure passes, those whose individual or joint income exceeds $250,000 would have some of their income taxed at a rate higher than the current 4.95% flat income tax rate. Individuals who make more than $750,000, or couples filing jointly with incomes over $1 million a year, would pay a flat 7.99%.

The corporate rate would also be 7.99%, but that would only apply to a small number of businesses. Most small business owners claim the profits of their business operations in their individual income taxes. Any small business owner whose personal annual income exceeds $250,000 would likely pay more under the graduated income tax plan than what they pay now.

Both sides agree the structural rate change won't fix all of the state's financial woes, but supporters argue the state can't afford to wait until there's a complete solution to act.

"We can't continue to sit on our hands because something isn't perfect," said Quentin Fulks, chairman of the Vote Yes For Fairness campaign. "The notion that this won't help because it doesn't solve everything at once just doesn't make sense."