PI Original Angela Caputo Wednesday November 12th, 2008, 11:48am

A Growing List Of Reasons For A Progressive Income Tax

Over the course of the year, we've repeatedly pointed out that adopting a progressive income tax structure -- in which high-earners are taxed at a higher rate -- would do
wonders to stabilize Illinois' flagging economy. 

Here are a few reasons why: schools could be ...

Over the course of the year, we've repeatedly pointed out that adopting a progressive income tax structure -- in which high-earners are taxed at a higher rate -- would do wonders to stabilize Illinois' flagging economy. 

Here are a few reasons why: schools could be funded adequately; state officials could collect enough revenue to balance the books; and money would be available for desperately needed infrastructure improvements, which in turn would create more jobs.

In a new report (PDF) examining the nine states -- Illinois among them -- that take the biggest bite out of low-wage workers' paychecks, the Center on Budget and Policy Priorities provides another reason to get rid of our regressive tax policy.  They argue that lessening the burden on low-income families could lift a considerable number of residents out of poverty.

The researchers explain the perverse effect income taxes can have on those living in at or around the poverty line:

[F]amilies trying to work their way out of poverty often face an effective tax on every additional dollar earned in the form of lost benefits such as income support, food stamps, Medicaid, or housing assistance. Income taxes on poor families can exacerbate this problem and send a negative message about the extent to which increased earnings can improve family well-being.

Of course, by gradually reducing the number of Illinoisans living in poverty, the state would also reduce the need for social services, which are increasingly weighing down the budget in these tough economic times.

Here are some figures that put the tax burden on Illinois taxpayers in greater perspective:

- Illinois' taxable income threshold for the poor ranks 8th in the nation with a family of four earning $21,203 paying the same rate as one earning $250,000;

- Meanwhile, the wealth gap has grown to make the state's income disparity among the top 10 in the country;

- That means the wealthiest 1 percent of Illinoisans took home 21 percent of the state's entire gross earnings in 2006, while the bottom 50 percent of workers, combined, earned 12 percent.

We recently highlighted the results of a survey from the Paul Simon Public Policy Institute that found a majority of people in the Prairie State support a progressive income tax to raise sorely needed state revenue. A recent legislative analysis found that if households earning more than $250,000 a year were taxed at a national standard of 6 percent (rather than the current flat rate of 3 percent), the state would collect an additional $3 billion a year.

As Illinois Senators reconvene in Springfield today, they're likely to dance around the latest bleak revenue projections. But it's only a matter of time before they'll have to come up with a plan to cover the growing pile of unpaid bills.  Considering the evidence that the public supports reforming Illinois' tax structure, now is the time for lawmakers to revive the discussion.

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