As Dan Hynes' Democratic gubernatorial campaign has gained traction in the past week, his proposal to institute a progressive income tax system has once again received attention in the media as a potential solution to the ongoing budget crisis.  For instance, a recent Tribune profile inclued this prominent quote, "I have a plan to get us out of this mess."  And the State Journal-Register's endorsement on Sunday included this passage:

Hynes’ plan would spare 97 percent of taxpayers — those who make less than $200,000 a year — any income tax increase and raise $5.5 billion. It also would result in a fairer, more progressive tax system. Today in Illinois, the less money you make, the bigger a percentage of your income goes to government.

Some criticize Hynes’ plan, which calls for a constitutional amendment, as a pie-in-the-sky idea because of the steep hurdles it faces — a three-fifths majority of the legislature must vote to put the amendment on the ballot, voters must approve it, then the legislature would have to institute a progressive income tax structure.

The fact that Hynes' plan couldn't generate any additional income tax revenue until the middle of FY 2011 -- at the earliest -- is one potential problem.  But there's a much bigger issue with his proposal: It would likely generate far less than the $5.5 billion projected by the campaign.  Gov. Quinn touched on this point during the ABC 7 debate last night:

We first caught wind of the discrepancy regarding Hynes' revenue projections when the Institute on Taxation and Economic Policy (ITEP) released a study on Illinois' competing tax reform plans back in late October.  While the local media chose to highlight ITEP's conclusion that the General Assembly should combine the Quinn and Hynes proposals, we noted the think tank's estimate that Hynes' progressive tax proposal would bring in only $2.2 billion.

We've since obtained stratified 2007 income tax data -- originally produced by the Illinois Department of Revenue (IDOR) -- and the numbers appear to back up ITEP's projection.

First, a quick recap of Hynes' plan: He proposes preserving the 3 percent income tax rate for individuals making less than $200,000 and creating four higher tax brackets: 3.5 percent for earnings between $200,000 and $300,000; 5.5 percent for earnings between $300,000 and $500,000; 7 percent for earnings between $500,000 and $1 million; and 7.5 percent for earnings exceeding $1 million.  His budget proposal projects that these changes to the tax code would create $5.5 billion in additional revenue for the state.

But how much money would these brackets have generated if applied to the 2007 tax haul (the most recent year for which data is available)?  According to the IDOR numbers, here is how the taxable income (after deductions) broke down that year:

$13.9 billion in the $200K-$300K bracket
$14.5 billion in the $300K-$500K bracket
$15.7 billion in the $500K-$1M bracket
$28.7 billion in the $1M+ bracket

When you apply Hynes' proposed rates to these brackets, here's how the revenue breaks down:

The $200K-$300K bracket generates $69.5 million
The $300K-$500K bracket generates $362.9 million
The $500K-$1M bracket generates $627.5 million
The $1M+ bracket generates $1.3 billion
TOTAL: $2.3 billion

So how could Hynes have arrived at a revenue projection that is $3.2 billion higher? Late last year, we repeatedly asked his campaign to provide us with the taxable income breakdown they used to arrive at the $5.5 billion figure, but received no response.

One likely scenario is that they overlooked the amount of income that the wealthiest Illinoisans shield from state taxes through crafty accounting maneuvers, as we reported back in October.

The 2007 data shows that while the $1 million-plus bracket had a base income of $129 billion, their taxable income amounted to only $58 billion after deductions.  Our suspicion is that the Hynes campaign may have projected a much larger amount of taxable income from these highest earners, thereby substantially boosting their revenue projections. 

Indeed, if you simply ignore the deductions entirely, the amount of 2007 taxable income in this highest bracket would come to $100 billion (rather than $28.7 billion).  If you apply Hynes' 7.5 percent rate to this amount, you get ... $3.2 billion in additional revenue.

Once again, we can't know if our theory is right until the Hynes campaign releases the data underpinning their revenue projections.  Perhaps some other local reporters will demand to see those numbers as well.  And while they're at it, they should further investigate how the wealthiest members of our state are managing to squirrel away so much of their income.

Full Disclosure: The SEIU Illinois State Council, which sponsors this website, has endorsed Pat Quinn in the Democratic primary for governor.