Posted Online: April 20, 2013, 11:00 pm

44 years later, income tax still hurting Illinois

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By Scott Reeder

SPRINGFIELD -- Forty-four years ago, Illinois began collecting a state income tax.

Folks from Cairo to Chicago filled out their IL-1040s for the first time back in 1969 and the state began to transform.

And not in a positive way.

State government has ballooned during the last four decades and the government's thirst for more money has yet to be quenched.

When the income tax passed the rate was 2.5 percent. We are now paying double that. But are we getting 100 percent better government today than we did in 1969? Illinois is more than $9 billion behind in paying its bills, its pensions are underfunded by $96 billion and our bond rating is the worst in the nation.

Illinois' problem isn't one of revenue, but of spending.

Taxes raise money for government and discourage certain conduct.
Tax advocates freely admit this. That's one of the reasons they push for higher taxes on booze, cigarettes, soda, plastic bags, bottled water and a host of things they think are either bad for you -- or the environment.

So what kind of conduct does an income tax discourage? It discourages working. It also penalizes risk-taking activities such as starting a business. And more importantly, it punishes success.

At times when federal income taxes have been lowered, the national economy has flourished. But here in Illinois, not only is state government floundering, but our economy is in the dumps. And now there is a push to raise income taxes in the state even higher.

Proponents are calling the push a "graduated income tax" or even the "fair tax."

It is anything but fair. The harder a person works or the wiser someone invests, the more the bureaucrats in Springfield will penalize them with a higher tax rate.

Taxes need to be broad, low and stable.

A progressive, or graduated, income tax is none of those things.
"Under a graduated income tax, income tax rates would increase as family income rises," said state Rep. David McSweeney, R-Barrington Hills. "We need to be incentivizing work effort, investments and entrepreneurship and not punish families when they make more money."

McSweeney is a sponsor of HR 241, which opposes a progressive income tax in Illinois. Texas, Florida and Washington don't have income taxes at all. And their economies are among the most robust in the nation.

When I was reporter in Las Vegas, a host of former Californians lived in my middle-class neighborhood. They moved there for the simple reason that Nevada had no income taxes, while California had some of the highest in the country.

High taxes encourage people to leave. Low taxes encourage them to stay.
Texas Gov. Rick Perry is well aware of this. He has launched an initiative to lure Illinois business to the Lone Star State. Among the reasons he is citing is that Illinois has a 5 percent income tax while Texas has none.

Illinois also has one of the slowest growth rates in the nation. In 2011, Texas issued 97,450 building permits while Illinois issued 11,809.

The best way to reverse that trend is to lower income taxes -- not raise them.
Scott Reeder is a veteran statehouse reporter and the journalist in residence at the Illinois Policy Institute; sreeder@illinoispolicy.org.