Watch Zoom debate on merits of graduated income tax amendment

A graduated tax proposal voters face on their election ballots can't solve Illinois' pension funding gap, people on opposite sides of the issue agreed Monday.

But their viewpoints diverged from there.

Ralph Martire, executive director of the Center for Tax and Budget Accountability, argued in favor of the graduated tax during a meeting with the Daily Herald editorial board. He said the graduated tax, by raising $3.6 billion from people with annual taxable income over $250,000, would be a foundation for getting public pension debt under control.

Adam Schuster, director of budget and tax research for the Illinois Policy Institute, told the editorial board in the meeting via Zoom that a graduated income tax rate gives legislators too much power and is the wrong way to tackle debt. Instead of a graduated tax amendment to raise revenue, a different change to the state Constitution should be put to voters to curb the automatic cost-of-living adjustments public pensioners receive, he said.

Ultimately, voters will decide the fate of the graduated tax initiative Nov. 3.

The two sides have committed almost $100 million combined to try to sway voters to their side on the referendum, which asks whether to remove a constitutional requirement for a flat income tax in Illinois.

The actual tax brackets were set by the Democrat-led legislature and would generate an estimated $3.6 billion more a year in income taxes from the wealthiest 3% of people in the state.

The men debated the potential effects of the proposal on retirement income, the ability of legislators to change the proposed rate structure, the likelihood of millionaires leaving Illinois and other nuances of the proposal.

"This cannot solve the state's pension crisis," Schuster said. "Illinois cannot tax its way out of the pension crisis. The (graduated) income tax only generates about $3 billion a year now after the COVID economy, and that's not even enough for three or four months of the annual pension payments."

Martire argued that a graduated income tax rate is more fair to lower-income residents who already pay a larger portion of their earnings on the state's other taxes and standardized fees than wealthier residents.

"If you look at what's draining the state's fiscal system on the spending side, it's got nothing to do with spending on services," Martire said. "We're spending tons more on pensions, but it's all debt service."

Illinois is one the few states with a flat income tax. Most other states and the federal government have graduated income tax rates, where a worker's income is taxed at different rates the higher it goes. The planned rates in Illinois would have 97% of workers paying the same or a lower rate than they are now, supporters calculate.

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%.

For the measure to pass, 60% of those voting on the question must be in favor of it or a simple majority of all the ballots cast in the election must favor it.