Voters will have chance to reject failed supply-side economics
Roget's Thesaurus defines "momentous" as meaning "so critically decisive as to affect the future." Which makes the term particularly apt for describing the upcoming general election slated for November of 2020. And not just because voters will have the opportunity to reject a president who uses blatantly racist rhetoric to gain political advantage by pitting Americans against each other based on the colors of our skin.
Closer to home, Illinois voters will have the rare opportunity to determine how the state will tax their income. That's because Gov. J.B. Pritzker successfully lobbied the General Assembly to pass a resolution to amend the state's constitution to permit what it currently prohibits: a graduated rate income tax. This would allow Illinois to tax people more fairly, by assessing tax rates in a manner that tracks ability to pay, assigning higher tax rates to higher levels of income and lower rates to lower levels of income.
Which is precisely what will happen under the new rate structure that will be instituted if the constitutional amendment becomes law. Under this proposed income tax structure, marginal rates will vary from a low of 4.75% to a high of 7.99%. It is designed to raise around $3.6 billion in new revenue to address some of Illinois' significant fiscal shortcomings -- all while reducing the income tax burden for 97% of all Illinois taxpayers. Increasing taxes on just the wealthiest three percent while cutting taxes for everyone else would in fact better align state income tax burden with ability to pay. That's because since 1979, 108% of all inflation-adjusted growth in income in our state -- or more than all of it--has gone to the wealthiest 10% of earners. Which means the bottom 90% of Illinois workers are taking home less today than they did four decades ago.
The catch is, this new, fairer income tax only becomes law if Illinois voters ratify the proposed constitutional amendment during the 2020 general election. This is a big catch for many reasons, not the least of which is all the money that will be spent to convince working stiffs to vote against their own interests and reject the fair tax.
Much of the anti-fair tax crusade is being pushed by the well-financed proponents of "supply-side" economics. Since the Reagan Administration in the 1980s, supply-siders have averred that the best way to stimulate faster economic growth is to cut taxes on really wealthy people -- whom they refer to as "job creators." They claim that because cutting taxes on the wealthy increases their after-tax income, it encourages them to work more, earn more, and most importantly invest more. And that investing more is what "trickles down" and stimulates more robust economic activity, resulting in more jobs for everyone who, well, isn't wealthy.
Moreover, they claim that because the economy will grow so much faster, tax cuts for the wealthy pay for themselves -- as the folks being "trickled-on" will start paying taxes they otherwise wouldn't from their newly created jobs.
The only problem with this theory is that all the evidence shows it doesn't work.
Consider that from the end of World War II through 1979, the top federal income tax rate on really high levels of income was also really high, varying from 70-92%. Despite that, real, inflation-adjusted GDP growth over this period averaged 3.8% per year. Then came the tax cuts for the wealthy that began with the Reagan Administration and were expanded under George W. Bush's Administration. Over this sequence, the top federal tax rate was cut from 70% in 1980 down to 35% by 2003.
Given these significant federal tax cuts for the wealthy have been in place for 40 years, if supply-side theory worked in practice, the economy would have taken off. But it didn't. In fact, in real terms, national GDP grew by an average of only 2.7% per year since the feds began cutting taxes for the wealthy in the 1980s -- which is more than a full percentage point slower than when tax rates on the wealthy were much higher.
And because the economic growth promised from the tax cuts never materialized, neither did the promised "new revenue" that was supposed to come from taxes paid by the not-so-wealthy folks who were supposed to benefit from the "trickle down" effect. Indeed, rather than pay for themselves, these tax cuts for the wealthy have contributed substantially to the yawning growth in the federal deficit.
Which means that as momentous as the decisions facing voters in the 2020 election are, the choices are fairly clear. In one fell swoop, Illinoisans can reject the use of racist demagoguery from the White House -- and the failed theory of supply-side economics.
Ralph Martire, email@example.com, is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University.