One of the biggest debates now playing out in Springfield centers on whether Illinois should replace its flat-rate income tax with a graduated system that taxes higher income at higher rates.
Democratic Gov. J.B. Pritzker recently proposed a series of rates he says would generate billions in new revenue while raising taxes only on the wealthiest 3% of Illinoisans, those reporting income of more than $250,000. Before lawmakers can take up his proposal, however, they must first add a question to the 2020 ballot asking voters to replace language in the state constitution that mandates a flat income tax.
While Democrats control the legislature, approval of any referendum to change the constitution requires an extraordinary majority of votes, so securing approval for Pritzker’s ballot question is far from certain. Meanwhile, interest groups representing both sides in the debate are busy trying to sway public opinion.
We recently rated False a claim from a business-linked group opposing Pritzker’s plan, which said it contained a “permanent jobs tax on middle-class families.” Now, Think Big Illinois, a Pritzker-backed group, is out with an ad pushing for a graduated tax that makes its own puzzling assertion.
“In almost every state with an income tax, wealthy people pay a higher tax rate than the middle class,” a narrator says in the ad, as a map highlights the states with graduated income taxes under the banner “STATES WITH A FAIR INCOME TAX SYSTEM.”
It’s true Illinois is one of just nine states that currently tax income at a flat rate, while 32 others levy taxes under a series of graduated rates and a handful have no state income tax. Pritzker’s proposal, if approved as is, would indeed charge higher rates only on the wealthy. But that isn’t necessarily the case with graduated tax systems in other states.
‘Fair tax’ vs graduated tax
Just as Pritzker’s opponents have branded the graduated tax a “jobs tax,” Pritzker and his supporters label it a “fair tax,” both in the text of Think Big Illinois’ ad and in conversation.
By “fair,” the Pritzker camp means a tax system that charges higher rates on higher levels of income.
“I’ve said from the beginning that it doesn’t make sense that I pay the same rate as a teacher or first responder,” Pritzker, a billionaire three times over, said in a statement included in a recent press release about the proposed language for his constitutional amendment.
But just because a state applies different rates to different amounts of income doesn’t mean only the wealthy pay top rates. In neighboring Missouri, for example, the state’s top rate of 5.4% is levied on all income over $8,424, according to the Tax Foundation, which compiles state tax rates and brackets annually. Alabama’s top rate kicks in even sooner — after the first $3,000 for single filers.
Eight other states also begin levying their highest rates on income below $25,000, the Tax Foundation’s chart shows. That’s a far cry from what anyone would consider “wealthy.”
So we asked Think Big Illinois what their ad meant when it said “almost every state” with an income tax applied higher rates to the wealthy, given that nine states levy the same tax on everyone and a total of 10 others apply their top rates to all but the poorest.
A spokeswoman responded with an email that did not directly address the language used by the narrator in the ad.
“Almost every state with an income tax employs a graduated tax system like a fair tax that taxes those with higher incomes at a higher rate,” wrote Lara Sisselman, the group’s communications director. “Illinois is just one of nine states that has an income tax, but taxes everyone at the same rate.”
Taxing the ‘middle class’
With nearly half of income-taxing states not charging higher rates to the wealthy, it’s clear the ad’s claim is off base. But it also got us wondering how the other graduated-tax states compare when it comes to taxing the middle class.
There is no universally accepted definition of “middle class,” but a reasonable barometer is supplied by the U.S. Census, which charts median income of households, families and single-person homes for each state. Comparing those federal guideposts with the Tax Foundation’s chart, we found 14 states in which people making the median income for any household type would clearly not pay the state’s top rate on any dollar they make.
Even California’s fourth-highest rate for single filers applies only to income over $286,492, for instance. And in New York, only earnings greater than $215,400 for single filers and $323,200 for married couples are subject to the state’s second-highest rate, while its highest is reserved for amounts exceeding $1 million.
But there are another eight states where the top rate kicks in not far from the median income or at a level many academic definitions of “middle class” would still appear to encompass.
The median income listed by the Census for the category of people that most closely approximates single filers in Arkansas, for example, is just over $25,000, while the state’s top tax rate kicks in after the first $37,200 a taxpayer earns. Then there’s Louisiana, where median family income is just over $60,000, while the top tax rate for married couples applies only after the first $100,000 they make. Still, it’d be a tough sell to argue that all taxpayers who pay top rates on some of their income in those states are necessarily wealthy, especially depending on family size.
Think Big Illinois’ ad claims that, “in almost every state with an income tax, wealthy people pay a higher tax rate than the middle class.”
A spokeswoman for the Pritzker-backed group noted that Illinois is one of just nine states that tax income at a flat rate. Images that accompany the ad hint at that, but the narration ignores any nuance.
Even by the most conservative definition, there are 19 states with income taxes that do not apply higher rates to the earnings of the wealthy — nine flat tax states and 10 with graduated taxes with rates that top out at income below $25,000. Add in another eight states where top rates for married couples kick in somewhere between $31,000 and $104,000 and the Think Big claim becomes even more dubious.
That means far from “almost every” income-taxing state levies a higher rate on top earners, earning this claim a rating of Mostly False.
MOSTLY FALSE – The statement contains an element of truth but ignores critical facts that would give a different impression.
Click here for more on the six PolitiFact ratings and how we select facts to check.