ILEPI Testimony on a Progressive Income Tax Before the Illinois House

On Wednesday, May 2, the Illinois House Revenue & Finance Committee held a hearing on the possibility of a progressive income tax in Illinois. Frank Manzo IV, MPP, Policy Director of the Illinois Economic Policy Institute (ILEPI) provided a brief testimony. Here is what he said.

Please CLICK HERE to read a full version of the testimony.

Good afternoon, Mr. Chairman and Members of the Committee. My name is Frank Manzo IV. I am the Policy Director of the Illinois Economic Policy Institute, a nonprofit research organization that provides candid and dynamic analyses on major subjects affecting the Illinois economy.

In 2017, the Illinois Economic Policy Institute and the University of Illinois conducted an evidence-based review of public policies that grow state economies. And we concluded that, time and again, the academic research finds that investing in public education and investing in infrastructure are the most effective public policies at achieving broad-based economic prosperity. Fiscal sustainability through balanced budgets also allows governments to fund these investments and boosts business confidence.

For years, the State of Illinois has under-invested in public education, under-invested in infrastructure, and operated without budget stability. This means that our economy has grown slower than the rest of the nation. The lack of state support has produced financial distress for school districts and forced local governments to rely heavily on property taxes– a “regressive” form of taxation. State funding for universities has declined, resulting in students choosing to go out-of-state for school. And Illinois residents have become accustomed to pothole-filled roads, deteriorating transit systems, and unsafe veterans’ homes. Put simply, Illinois needs– needs– to generate additional revenue to balance the budget and enhance public investment.

Replacing the flat income tax with a graduated income tax, if done correctly, could generate the additional revenue to balance the budget and stimulate the economy– all while cutting taxes for the vast majority of Illinois households. The Center for Tax and Budget Accountability has a proposal that would cut taxes for 98 percent of Illinois taxpayers, raise them on the richest 2 percent, and generate $2 billion in revenue per year. This proposal would help make Illinois’ tax code fairer by shifting the burden from working-class families to wealthy families.

Now, we at the Illinois Economic Policy Institute are currently working with our partners at the University of Illinois Project for Middle Class Renewal to study different plans for a possible graduated income tax in Illinois. We are evaluating proposals based on a number of metrics. And we are finding that a well-designed graduated income tax can achieve many goals, including cutting taxes for the vast majority of Illinois households and raising them on the rich, holding small “pass-through” businesses harmless and boosting economic growth, and increasing public investments while cutting local property taxes.

Lastly, I just wanted to note that opponents of graduated income tax systems often present unsound arguments based on the discredited idea of “trickle-down” economics. A 2017 analysis found that the nine states with the highest top income tax rates had faster GDP growth, and faster personal income growth than the nine states with no income taxes. And opponents have no explanation for the recent failure of the experiment in Kansas, which adhered to trickle-down theories and “flattened” their progressive income tax, but later found themselves saddled with less state revenue, a budget deficit, and slow job growth. Since 2012, employment growth in Kansas has fallen behind the national average. Even Illinois had higher job growth than Kansas. The point is that trickle-down arguments often lead to unsound public policy.

Here are the two things that I really want you to take away from my testimony today.

  1. The Illinois economy is falling behind largely due to a lack of investment in public education and infrastructure, as well as a lack of investor confidence in the state.
  2. A progressive income tax could help Illinois achieve desirable policy outcomes, including cutting taxes for middle-class families while raising them on the rich, generating revenue to reduce the structural budget deficit, and providing property tax relief for homeowners.

Lawmakers should consider a constitutional amendment to permit a graduated income tax in Illinois.

Once again, please CLICK HERE to read a full version of the testimony.

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