PI Original Adam Doster Friday April 4th, 2008, 12:22pm

Dem State Rep. Challenging Illinois' Regressive Flat Income Tax

State Sen. Kirk Dillard, a Hinsdale Republican, called it "class warfare." Others have named it "the Robin Hood referendum." But Rep. Mike Smith (D-Canton) has offered a simple solution to the state's revenue problem: double the 3 percent state income ...

State Sen. Kirk Dillard, a Hinsdale Republican, called it "class warfare." Others have named it "the Robin Hood referendum." But Rep. Mike Smith (D-Canton) has offered a simple solution to the state's revenue problem: double the 3 percent state income tax rate for individuals and joint tax filers who make more than a quarter-million dollars a year.

If the downstate lawmaker's proposal passes, Illinois voters would decide in November if this group of taxpayers (which represents 5 percent of the state's tax filers and an estimated 107,000 people) should contribute 6 percent of their income. According to the Daily Herald, "the increase would generate nearly $3 billion annually to be split equally among education funding, state-sponsored construction and tax relief in the form of doubling the personal exemption for those making less than $250,000 annually." And as Dan Johnson-Weinberger noted this morning, it appears that a number of downstate representatives are supporting Smith's amendment, which is encouraging.

Progressive tax reform is an issue that should resonate with Illinois residents. Thanks to a heavy reliance on property and sales taxes and a constitutionally-mandated flat income tax, Illinois' tax structure is one of the most regressive in the nation. Kelly Davis, a representative from the non-profit Institute on Taxation and Economic Policy, told a House subcommittee last year (pdf) that on average, the bottom 20 percent of Illinois households paid 12.8 percent of their 2004 income in state and local taxes while the top 1 percent only paid 4.6 percent (after taking federal deductions for state and local taxes into account). Everyone in the bottom 80 percent of the income distribution scale bears a heavier burden than the national average as well. From Davis' report:

(More after the jump ...)

Of the 40 states that collect income taxes, Illinois is one of only seven that charges a flat income tax rate. The other 33, including our bordering states of Wisconsin, Iowa, and Missouri, have a graduated tax rate that is proportionate to a household's income. For instance, Wisconsin income taxes range from 4.6 percent to 6.75 percent, while Iowa's rates range from 0.36 percent to 8.98 percent.

Tax reform couldn't come at a more crucial time, as Gov. Blagojevich recently estimated that the state budget shortfall could soon hit $5 billion. It's a trend that's sweeping the nation:

At least half of the nation's states are facing budget shortfalls, some of them severe, and policymakers in most of the states affected are proposing and passing often-painful measures to trim costs and close the gaps. Spending on schools is being slashed, after-school programs are being curtailed and teachers are being notified of potential layoffs. Health-care assistance is being cut for the elderly, the disabled and the poor. Some government offices, such as motor vehicle department locations, will start closing on weekends, and some state workers are receiving pink slips.

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