“Should the Illinois Constitution be amended to create an additional 3% tax on income greater than $1,000,000 for the purpose of dedicating funds raised to property tax relief?”
This statewide ballot question, dubbed by its supporters as the Illinois Property Tax Relief Amendment Referendum, has been pushed by former Illinois Gov. Pat Quinn. Other prominent and predictable supporters of this nonbinding referendum include U.S. Reps. Jesús “Chuy” García and Danny Davis.
These Democrats are linking the property tax crisis among the middle class in Illinois (specifically, the huge hikes in bills seen in the recently reassessed South and West suburbs in Cook County) with tax rates for high-income Illinoisans. By saying they are earmarking the potential revenue for property tax relief, they are disguising what otherwise is a simple state tax increase on high earners.
How much this endeavor would swell Illinois coffers is disputed, but WBEZ reported Thursday that the state’s revenue department has estimated it would raise $4.5 billion.
By way of background, note that the Illinois Constitution states that the state shall have a flat tax: specifically, “a tax on or measured by income shall be at a non-graduated rate.” Most likely, the passage of this question would lead to another ballot initiative for a constitutional amendment.
Note also that voters rejected a 2020 effort by Gov. JB Pritzker to establish a graduated state income tax that would have reduced the current 4.99% flat rate on single and joint filers making under $100,000 and variously increased it on those above that level; the Chicago Teachers Union, looking for money for its members, wants the governor to try again. Naturally.
We say the voters already spoke. We encouraged a ‘no’ vote on that 2020 effort saying, in part, that “the beauty of today’s flat rate is that raising it on everyone at once is much harder politically than gouging one cohort at a time. This amendment would strip taxpayers of their leverage against ever-more hikes.”
Clearly, voters agreed and that argument still holds.
This is a less subtle attempt to push through another tax increase — a massive one, for the $1 million-plus crowd — by linking it to property tax relief, not that the state would actually have to follow through with that promise and not that the two methods of governments raising money from citizens inherently are joined at the hip. And, of course, once a tax rate is in place it has a habit of sticking around.
One million dollars in yearly income from all sources might sound like a massive income to most Illinoisans, and it certainly catches very wealthy families. No question. But it behooves taxpayers to consider the impact of inflation: That threshold is not inflation-linked, at least on the referendum, and over time it would catch more and more taxpayers, especially if it applies to couples filing jointly. And it’s a huge hike.
The bigger problem is that wealthy Illinoisans are among the most mobile Illinoisans. When taxes are raised on them, they tend to exit for other states and that means the state promptly loses all of their tax monies. The most famous example of this was the departure for Miami of billionaire Ken Griffin, formerly of Chicago, who had paid more than $10 billion in Illinois taxes in the decade before he left. When Griffin left, he took with him some other high-earning executives at Citadel, his hedge fund. As he told us at the time, it also caused him to refocus his formidable philanthropic efforts.
It’s near impossible to accurately estimate the total financial impact of Griffin’s departure just as no one can say for sure how many wealthy Illinoisans would follow his lead if this new tax came into being. But our prediction is that while most of the Illinoisans near that demarcation line would perhaps stick around, those far beyond it — those who matter the most for fiscal purposes — would do the math and look elsewhere for their permanent residency. IRS rules allow you to still own property and spend substantial portions of the year where you don’t actually live. Plus metro Chicago, the seat of most of the wealth in Illinois, is situated with other states within commuting distance.
The new tax certainly would be a boon for property values in Indiana (which has a much lower flat-rate tax than Illinois) and southwest Michigan (also a flat-rate tax) and, in these work-from-anywhere days, many would decamp for states further removed.
We’ve reiterated many times before that attracting and keeping high earners is crucial for Illinois. Aside from the tax revenue, these are a state’s job creators and philanthropists, supporting culture and nonprofit institutions and forming personal foundations and launching businesses that will hire future Illinoisans. Chasing them away is a fool’s game. The way toward providing property tax relief is for governments to rein in their own spending and pursue efficiencies and better practices, not add to the burdens of those already living in a high-tax state.
It’s tempting to hit up a demographic not your own, and that’s why this question is phrased that way.
But it should be rejected. In the UK, the exit of high net worth individuals, acknowledged as a big problem there by a left-leaning government, is known as “Wexit,” for the departure of wealth.
Illinois does not need its own version.
We endorse voting ‘no’ on the “millionaire’s tax referendum.”
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