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Want to fix the state’s budget deficit?

While the legislature slashes human services and education, a new analysis shows that taxing the state’s wealthiest residents at the rate now borne by its poorest residents would eliminate state and local deficits, including pension shortfalls — and avoid the human and economic costs of drastic cuts.

The bottom 20 percent of Illinois households pays 13 percent of their income in combined income, property, and sales taxes, according to a new study by United for a Fair Economy and the Center for Tax and Budget Accountability.  That’s more than double the burden for the top 20 percent, which pays 6.2 percent – and over three times the 4.1 percent share paid by the top 1 percent.

Flip that regressive structure – rearrange it so the top earners pay 13 percent – and you would have an additional $32.5 billion each year, according to the study.  Taxes for the bottom 60 percent would stay the same or decrease.

“It’s just a matter of being more reasonable about how we tax people,” said Ron Baiman of CTBA.

“Trying to raise adequate revenue through a regressive tax structure — where a greater percent of income is demanded of the poor than the well-off — is like trying to squeeze water from a stone,” said Karen Kraut, coordinator of state tax policy at United for a Fair Economy and co-author of the report.

The study looks at all 50 states and finds that the “upside-down,” regressive nature of their tax structures “is a major reason that states are grappling with such significant budget shortfalls.”

Not only are revenues down because of overreliance on the low- and middle-income households that are hurt most by a downturn, but the tremendous income growth at top incomes in recent decades has not been tapped.

Illinois has one of the most regressive tax structures in the nation, with its poorest residents paying a higher share of income in taxes than those in 47 other states.

To achieve a more progressive structure, states need to move toward a graduated income tax and reduce reliance on regressive sales and property taxes, according to the report.

In the state budget just adopted by the General Assembly, Baiman is angry that a proposal to decouple the state from a federal business depreciation bonus wasn’t included.

That would have brought in an additional $600 million in revenue, he said; 27 other states have decoupled from the accelerated depreciation deduction.

“It’s absolutely inexcusable,” he said.  “Why would you forego $600 million in revenue at a time like this?”

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Category: state budget, taxes

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2 Responses

  1. [...] basic problem is that the tax burden is concentrated on the people who have been hurt most badly in the recession, he [...]

  2. [...] has one of the most regressive tax structures in the nation.  As noted here last year, the bottom 20 percent of households pays twice as much of their income in state and local taxes [...]

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