Transcript center for tax and budget accountability

CENTER FOR TAX AND BUDGET ACCOUNTABILITY
70 E. Lake Street  Suite 1700  Chicago, Illinois 60601  direct: 312.332.1049  Email: [email protected]
Prepared for the League of Women Voters
Fair Tax for Illinois
Graduated Rate Income Tax
© 2012, Center for Tax and Budget Accountability
The Problem (General Fund)
© 2012, Center for Tax and Budget Accountability
The Problem
Category
FY 2013 Actual
(i)
Projected FY2013 Revenue
$33.72
(ii)
FY2013 Hard Costs
$9.32
(iii)
Deficit Carry Forward from FY 2012
$9.00
(v)
$23.54
(vi)
General Fund Service Appropriations in Enacted G.F.
Budget (Net of “Unspent Appropriations”)
Minimum FY2013 General Fund Deficit
($8.14)
(vii)
Deficit as a Percentage of General Fund Service Approps
-34.6%
Sources: FY2013 Budget as passed in HR706, SB2348, SB2413, SB2443, SB2454, SB2474, SB2332,
SB2378, SB2409, and June 2012 Communications with Legislative staff; Revenue from Amendment No.
1 to HR707 adopted March 1, 2012, and Senate Floor Amendment No. 1 to SR 586 adopted March 7,
2012; and unpaid bills from April 2012 Quarterly Report from the Comptroller.
FY 2013 Accumulated Deficit ($ Billions)
© 2012, Center for Tax and Budget Accountability
5 Points for Fair Tax in Illinois
 Illinois cannot fix it’s problem with cuts ALONE.
 The problem can be solved with comprehensive tax
reform.
 Illinois residents should be taxed fairly to keep up
with a modern economy.
 A graduated income tax will NOT hurt the economy
but will actually help it.
 This CAN happen.
© 2012, Center for Tax and Budget Accountability
Illinois cannot fix its problem with cuts alone.
Over $9 out of $10 of General Fund are spent on:
Education
(PreK-12 plus Higher Ed)
35%
Healthcare
30%
Human Services
21%
Public Safety
5%
91%
© 2012, Center for Tax and Budget Accountability
Illinois cannot fix its problem with cuts alone. Significant decline in spending
since 2000 when adjusted for Inflation and Population Growth ($ Millions)
Category
Net Public Services excluding
Pensions and Group Health
P-12
Higher Ed
Healthcare (excluding Group
Health)
Human Services (excluding all
Healthcare)
FY2013
Enacted
FY2000, Enacted
Adj for Infl (ECI) &
Pop Growth
$ Diff FY2013 – % Change
FY2000 Adj (ECI
& Pop Growth)
$23,539
$30,915
-$7,376
-23.86%
$6,542
$1,980
$7,464
$3,315
-$922
-$1,335
-12.35%
-40.28%
$6,852
$8,934
-$2,082
-23.30%
$4,749
$7,086
-$2,337
-32.98%
Public Safety
$1,606
$2,081
-$475
-22.82%
Sources: FY 2013 Budget as passed in HR 706, SB2348, SB2413, SB2443, SB 2454, SB2474, SB 2332,
SB2378, SB2409, and June 2012 Communications with Legislative staff.
© 2012, Center for Tax and Budget Accountability
Illinois cannot fix its problem with cuts alone
Local and State Share of Education Funding Spending
Source: National Center on Education Statistics, 2011. “Revenues and Expenditures for Public Elementary and
Secondary Education: School Year 2008-2009 (Fiscal Year 2009).”
© 2012, Center for Tax and Budget Accountability
Illinois cannot fix its problem with cuts alone
Education related to Unemployment…
Unemployment Highest Among Least Educated, 2010
Nation
20.7%
5%
0%
LT HS
© 2012, Center for Tax and Budget Accountability
HS Grad
Some Col
Source: EPI Analysis of CPS Data
BA or +
5.7%
5.2%
6.9%
9.3%
10%
9.4%
9.1%
12.0%
Illinois
12.9%
21.9%
15%
Midwest
13.1%
20%
18.8%
Percent Unemployed
25%
Illinois cannot fix its problem with cuts alone.
As for cutting Health Care well…
 Employer-provided health
insurance benefits have been
steadily declining in Illinois since
1980.
 By 2010, 56% of families with at
least one member working full time
did not have employer-provided
insurance.
 By 2010, 32% of the Illinois
population was either on Medicaid
or uninsured.
© 2012, Center for Tax and Budget Accountability
Illinois cannot fix its problem with cuts alone.
Health Care Spending, since FY2000, Adjusted for Inflation
and Population ($ Millions)
Category
FY2000
Enacted
FY2000
Infl& Pop
Adj to
FY2013
FY2013 Enacted
% Diff
FY2013
GOMB &
FY2000 Adj
Healthcare (including Medicaid, DHFS
and DPH, but excluding Group Health
Insurance)
$5,022
$8,934
$6,852
-23.3%
Sources: Unadjusted historic appropriations from Governor’s Final Budget Summary for FY2000; FY 2013 Enacted for Medicaid
from SB 2454 and as reported by Senate staff, June 2012. FY 2013 appropriation for “Other Healthcare” of $ 213.3 million is based
on SB2454 DPH and DHFS appropriation minus Medicaid. FY 2012 Healthcare (net of Group Health) is sum of these. Health Care
spending inflation adjusted using the Midwest Medical CPI.
© 2012, Center for Tax and Budget Accountability
Illinois cannot fix its problem with cuts alone.
What does Human Services Cover?
 Mental Health Services
 Developmental Disabilities
 Caring for Seniors
 Childcare for Single Working Parents
 Domestic Violence Prevention/ Treatment
 Caring for Abused and Neglected Children
 Substance Abuse and Alcoholism Services
© 2012, Center for Tax and Budget Accountability
5 Points for Fair Tax in Illinois
 Illinois cannot fix it’s problem with cuts ALONE.
 The problem can be solved with comprehensive tax
reform.
 Illinois residents should be taxed fairly to keep up
with a modern economy.
 A graduated income tax will NOT hurt the economy
but will actually help it.
 This CAN happen.
© 2012, Center for Tax and Budget Accountability
The problem can be solved with tax reform.
Tax Policy Should Be:
FAIR

PROGRESSIVE
RESPONSIVE

TO MODERN ECONOMY
STABLE

DURING POOR
ECONOMIES
EFFICIENT

DOESN’T DISTORT
PRIVATE MARKETS
ILLINOIS IS 0 for 4
© 2012, Center for Tax and Budget Accountability
The problem can be solved with tax reform.
Primary Causal Factors of IL Financial Woes:
 Flawed Tax Policy
 Irresponsible Fiscal practices
 NOT The “Great Recession” of
2008-2009
© 2012, Center for Tax and Budget Accountability
Marginal v. Effective Tax Rate
 The marginal tax rate is the rate applied to your
taxable income, that is after all deductions, etc. for a
specified range of income.
 The effective tax rate is the percentage of your
taxable income you actually pay in income taxes,
across all marginal tax brackets and after all credits
and deductions.
© 2012, Center for Tax and Budget Accountability
R
a
t
e
Base Income
© 2012, Center for Tax and Budget Accountability
Average
E
f
f
e
c
t
i
v
e
Less than Zero
$0 > $1,000
$1,000 > $3,000
$3,000 > $5,000
$5,000 > $7,000
$7,000 > $9,000
$9,000 > $11,000
$11,000 > $13,000
$13,000 > $15,000
$15,000 > $17,000
$17,000 > $19,000
$19,000 > $22,000
$22,000 > $25,000
$25,000 > $30,000
$30,000 > $35,000
$35,000 > $40,000
$40,000 > $50,000
$50,000 > $75,000
$75,000 > $100,000
$100,000 > $150,000
$150,000 > $200,000
$200,000 > $300,000
$300,000 > $500,000
$500,000 > $1,000,000
$1,000,000 OR MORE
The problem can be solved with tax reform. Our flawed tax policy:
Effective Tax Rates By Base Income Under Illinois’ Current
5% Flat Tax
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
The problem can be solved with tax reform.
Irresponsible Practice –Required, partly from unpaid past, State
Pension Contributions FY2013 – FY2045
$16,000
$14,000
$12,000
$ Millions
$10,000
$8,000
$6,000
$4,000
$2,000
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
$0
Source: COGFA, “A Report on the Financial Condition of the IL State
Retirement Systems: Financial Conditions as of June 30, 2011,” p. 95.
© 2012, Center for Tax and Budget Accountability
The problem can be solved with tax reform.
Future Options :
 Borrowing from financial institutions to pay
overdue bills and cover operating costs
 Continued deferment of payments owed
providers
 Further cutting appropriations for services
 Raising Revenue:
 Expanding sales tax to services.
 Taxing some retirement income.
 A GRADUATED RATE INCOME TAX.
© 2012, Center for Tax and Budget Accountability
R
a
t
e
Base Income
© 2012, Center for Tax and Budget Accountability
Average
E
f
f
e
c
t
i
v
e
Less than Zero
$0 > $1,000
$1,000 > $3,000
$3,000 > $5,000
$5,000 > $7,000
$7,000 > $9,000
$9,000 > $11,000
$11,000 > $13,000
$13,000 > $15,000
$15,000 > $17,000
$17,000 > $19,000
$19,000 > $22,000
$22,000 > $25,000
$25,000 > $30,000
$30,000 > $35,000
$35,000 > $40,000
$40,000 > $50,000
$50,000 > $75,000
$75,000 > $100,000
$100,000 > $150,000
$150,000 > $200,000
$200,000 > $300,000
$300,000 > $500,000
$500,000 > $1,000,000
$1,000,000 OR MORE
The problem can be solved with tax reform.
Tax Rates by Base Income with
Graduated Income Tax
(Possible GRIT scenario)
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
E
f
f
e
c
t
i
v
e
T
a
x
C
u
t
Less than Zero
$0 > $1,000
$1,000 > $3,000
$3,000 > $5,000
$5,000 > $7,000
$7,000 > $9,000
$9,000 > $11,000
$11,000 > $13,000
$13,000 > $15,000
$15,000 > $17,000
$17,000 > $19,000
$19,000 > $22,000
$22,000 > $25,000
$25,000 > $30,000
$30,000 > $35,000
$35,000 > $40,000
$40,000 > $50,000
$50,000 > $75,000
$75,000 > $100,000
$100,000 > $150,000
$150,000 > $200,000
$200,000 > $300,000
$300,000 > $500,000
$500,000 > $1,000,000
$1,000,000 OR MORE
The problem can be solved with tax reform.
Potential Effective Tax Rate Changes in Illinois with
Graduated Individual Income Tax Structure Scenario
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
Base Income
© 2012, Center for Tax and Budget Accountability
5 Points for Fair Tax in Illinois
 Illinois cannot fix it’s problem with cuts ALONE.
 The problem can be solved with comprehensive tax
reform.
 Illinois residents should be taxed fairly to keep up
with a modern economy.
 A graduated income tax will NOT hurt the economy
but will actually help it.
 This CAN happen.
© 2012, Center for Tax and Budget Accountability
Illinois residents should be taxed fairly to
keep up with a modern economy.
Most Other States Have Graduated Rates
 Federal Income Tax Rates are
Graduated
 34 of the 41 States with Income Taxes
have Graduated Rates
Our Neighbors:
 Iowa: 9 Rates (0.36% to 8.98%)
If we had Iowa’s rates we would have 6.8 billion more in
revenue and 56% of Illinoisans would pay lower taxes
 Kentucky: 6 Rates (2.0 to 6.0%)
 Missouri: 10 Rates (1.5% to 6.0%)
 Wisconsin: 5 Rates (4.6% to 7.75%)
Illinois residents should be taxed fairly to keep up
with a modern economy. Illinois State & Local Taxes Paid as
a Share of Family Income
for Non-Elderly Taxpayers
Income Group
Income
Average Income in Group
Sales & Excise Taxes
Property Taxes
Income Taxes
TOTAL TAXES
Federal Deduction Offset
TOTAL AFTER OFFSET
Lowest
20%
Less than
$18,000
$10,100
6.9%
4.8%
2.0%
13.7%
–0.0%
13.7%
Second
Middle
20%
20%
$18,000 – $36,000 –
$36,000 $58,000
$26,600 $47,000
5.5%
4.4%
3.6%
3.7%
3.2%
3.9%
12.3%
12.0%
–0.1%
–0.4%
12.2%
11.6%
Fourth
20%
$58,000 –
$95,000
$74,700
3.6%
3.7%
4.0%
11.4%
–0.7%
10.7%
Next
15%
$95,000 –
$196,000
$128,900
2.7%
3.9%
4.1%
10.7%
–1.1%
9.5%
Top 20%
Next
4%
$196,000–
$500,000
$300,700
1.7%
3.1%
4.1%
8.9%
–0.8%
8.0%
Top
1%
$500,000
or more
$2,084,700
0.8%
1.5%
4.2%
6.5%
–1.2%
5.3%
Source: Institute on Taxation & Economic Policy, Who Pays? A Distributional Analysis of Tax Systems in All 50 States, p. 42, Third Edition,
November 2009. Note: This table shows 2007 data updated to reflect permanent changes in Illinois tax law enacted through January, 2012.
© 2012, Center for Tax and Budget Accountability
Illinois residents should be taxed fairly to
keep up with a modern economy.
Income distribution has changed…
The long-term trends in income distribution in America
Distribution of US Income
Growth Over Time
Distribution of US Income
Growth Over Time
Families
1947— 1979
Families
1979 — 2007
Top 10%
34.10%
Top 10%
63.70%
Bottom 90%
65.90%
Bottom 90%
36.30%
Source: Piketty and Saez, “Striking it Richer: The Evolution of Top Incomes in the United States
(Update with 2007 estimates),” August 5, 2009, U.C. Berkeley; Calculations from John Schmidt,
Challenge, September-October 2010.
© 2012, Center for Tax and Budget Accountability
Illinois residents should be taxed fairly to
keep up with a modern economy.
Sooo….
Despite being Big ‘N Rich
 In 2011, Illinois ranked fifth nationally with a
Gross State Product in excess of $671 billion
(BEA).
 That would be the 19th largest economy of any
nation in the world-greater than Egypt, Saudi
Arabia, Colombia, Belgium, Sweden, Greece,
Ireland, Portugal, Norway and Nigeria, to
name a few.
© 2012, Center for Tax and Budget Accountability
Illinois residents should be taxed fairly to keep up
with a modern economy.
Illinois GDP Growth has Lagged Long-term
GDP Growth 1990-2007
80.0%
70.0%
71.7%
60.0%
50.0%
49.4%
48.1%
40.0%
30.0%
20.0%
10.0%
0.0%
US
Midwest States
Illinois
Source: Bureau of Economic Analysis, US Dept. of Commerce
© 2012, Center for Tax and Budget Accountability
Illinois residents should be taxed fairly to keep up
with a modern economy.
 Illinois had
the second lowest real GDP Growth in the entire
Midwest in 2010
Real GDP Growth 2010
Indiana
4.6%
Iowa
3.1%
Michigan
2.9%
Wisconsin
2.5%
Ohio
2.1%
Illinois
1.9%
Missouri
1.4%
 National and
© 2012, Center for Tax and Budget Accountability
Midwest Average was 2.6%
5 Points for Fair Tax in Illinois
 Illinois cannot fix it’s problem with cuts ALONE.
 The problem can be solved with comprehensive tax
reform.
 Illinois residents should be taxed fairly to keep up
with a modern economy.
 A graduated income tax will NOT hurt the economy
but will actually help it.
 This CAN happen.
© 2012, Center for Tax and Budget Accountability
GRIT will not hurt the economy but will actually help it.
Hurting the private sector with job losses because of
state budget cuts
Estimated job loss if IL eliminates its deficit by cutting spending
0
-20,000
Jobs Lost
-40,000
-60,000
-56,893
-71,116
-80,000
-100,000
-99,562
-120,000
-128,008
-140,000
$4,000,000
$5,000,000
$7,000,000
Size of IL spending cut
Estimated job loss by cutting spending
© 2012, Center for Tax and Budget Accountability
$9,000,000
Graduated Rate Income Tax will not hurt the
economy but will actually help it
From 2000- 2010:
9 states with highest graduated income tax rate
structures had:



Better growth in state GDP per capita
Better change in median wage
Identical unemployment rate
Than the 9 states with NO income tax
Source: Institute on Tax and Economic Policy
© 2012, Center for Tax and Budget Accountability
GRIT will not hurt the economy but will actually help it.
Total State and Local Tax As a Percentage of Income 2010
Illinois has the second lowest total state and local tax burden as a
percentage of income (AND the second lowest GDP growth.)
Midwest States %
National Rank
Indiana
16.6%
17th
Iowa
17.0%
10th
Michigan
16.69%
12th
Wisconsin
16.6%
16th
Ohio
16.1%
26th
Illinois
14.2%
42nd
Missouri
13.5%
47th
Source: Federation of Tax Administrators. Includes all state and
local taxes and fees.
We Can Win a
Fair and
Graduated
Tax
5 Points for Fair Tax in Illinois
 Illinois cannot fix it’s problem with cuts ALONE.
 The problem can be solved with comprehensive tax
reform.
 Illinois residents should be taxed fairly to keep up
with a modern economy.
 A graduated income tax will NOT hurt the economy
but will actually help it.
 This CAN happen.
© 2012, Center for Tax and Budget Accountability
This CAN happen… GRIT can
 Make the system more fair; account for a
person’s ability to pay and asks more of the
rich
 Help repair the state budget long term and
fund vital services
 Spur the economy by putting money back in
the pockets of middle class Illinoisans
This CAN happen
Change Requires Constitutional Amendment Placed
on Ballot (by Legislature)
• ARTICLE IX – Revenue
• Section 3. LIMITATIONS ON INCOME
TAXATION
•
(a) A tax on or measured by income shall
be at a non-graduated rate.
This CAN happen
Constitutional Amendment Process
1. Constitutional amendments can only be
placed on the ballot by 60% of the
General Assembly approving (71 votes in
the House and 36 votes in the Senate)
2. Referendum must be approved by 60%
of voters
Need to win both legislative
support and voter approval
Remember
 Illinois cannot fix it’s problem with cuts ALONE.
 The problem can be solved with comprehensive tax
reform.
 Illinois residents should be taxed fairly to keep up
with a modern economy.
 A graduated income tax will NOT hurt the economy
but will actually help it.
 This CAN happen
© 2012, Center for Tax and Budget Accountability
For More Information:
Center for Tax and Budget Accountability
www.ctbaonline.org
Ralph M. Martire
Executive Director
(312) 332-1049
[email protected]
Jennifer Lozano
Research Associate
(312) 332-1348
[email protected]
© 2012, Center for Tax and Budget Accountability