Updated: September 24, 2012 6:25AM
In the rush to pass a badly needed income tax increase this year, state legislators had to dispense with fairness.
And by fairness we don’t mean skipping an income tax hike altogether.
We’re talking about reforming Illinois’ overly regressive tax structure — a system that places a greater burden on the poor than on the wealthy. Illinois has long had one of the country’s most regressive tax systems. The income tax rate, for example, is the same whether you make $1 million a year or $50,000. Democratic state leaders have long bemoaned this regressive system but have never succeeded in changing it.
In an effort to restart the reform conversation, Senate President John Cullerton on Monday floated taxing retirement income in Illinois for the first time, but only for high-earning seniors. Lower-income retirees would be exempt, and Cullerton recommended using the new revenue to lower overall rates. Illinois is one of the few states with an income tax that doesn’t tax retiree income at all.
The idea didn’t go over well, with the state Republican Party launching an online petition to oppose it. Any talk of a new tax — even if it would result in lower tax rates — is a hard sell on the heels of a major income tax increase.
But the noise should not drown out an important conversation about tax reform. Illinois desperately needs to update its tax system so it is based on ability to pay and targets taxes where the economy is expanding — among the wealthiest, not the poorest. Illinois’ current tax system, anchored by a flat income tax and a narrow sales tax base, disproportionately hits our poorest residents.
Gov. Quinn wants to create a commission to look at ways to update the tax system. We’re all for it, though several good proposals are already well-known. These include changing the state Constitution to allow for a graduated income tax, expanding the sales tax base to reflect our modern service economy (an idea Chicago Mayor-elect Rahm Emanuel supports) and, potentially, taxing some retirement income.
These ideas will not pull Illinois out of its current fiscal hole, but long term they’ll make for a more fair and equitable Illinois.