PI Original Ellyn Fortino Wednesday March 11th, 2015, 7:14pm

Report: 'Tax Fairness' Key To Solving Illinois Budget Crisis

Illinois could generate up to $8.6 billion in new revenue annually if it were to embrace "tax fairness," according to a new report by Good Jobs First and the Keystone Research Center.

If the top 20 percent of earners in Illinois were taxed at the same overall rate as the middle class, the state could significantly ease its budget pressures and fund key priorities, a new report by Good Jobs First and the Keystone Research Center argues.

The report's release comes amid debate over the state's dire fiscal situation and Republican Gov. Bruce Rauner's proposed 2016 budget, which includes widely unpopular cuts that have been described as "morally reprehensible." Rauner's budget blueprint for the upcoming fiscal year, which starts July 1, includes no new taxes.

As much as $8.6 billion in new revenue could be generated annually for the state and localities if the wealthiest 20 percent of Illinois earners were taxed at the same overall tax rate as the middle 20 percent, the research showed.

"This amount is sufficient to invest adequately in education from cradle to grave, improve Illinois' infrastructure and pay off pension debt," the report reads.

If Illinois taxed just the top 1 percent at that middle 20 percent rate, state and localities could raise $5.1 billion in new revenue each year. 

As part of the report, Good Jobs First and the Keystone Research Center, a Pennsylvania-based research and policy organization, also looked at "tax fairness" nationwide, showing that "inequitable tax codes cost states up to $128 billion annually."

"Restoring public goods that benefit all employers and all working families is critical to reversing the corrosive rise of inequality," said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based corporate and government accountability resource center. "The middle class won't recover -- and states won't get their finances in order -- until they fix their tax codes."

Illinois has the fifth most regressive state tax system in the nation due to its flat income tax, under which all residents are taxed at the same rate despite their income, and its relatively high reliance on sales and property taxes, according to a separate report released earlier this year by the Institute on Taxation and Economic Policy (ITEP). The state's flat income tax rate for individuals fell from 5 percent to 3.75 percent on January 1, when the temporary income tax hike rolled back.

Currently, the poorest Illinois residents pay almost three times more in state and local taxes as a percent of their income compared to the richest people in the state, ITEP found. The state's effective tax rates by income group are 13.2 percent for those in the bottom 20 percent of the income scale, 10.8 percent for the middle 20 percent and 4.6 percent for the top 1 percent.

When it comes to income inequality, Good Jobs First and the Keystone Research Center point out that the top 1 percent in Illinois captured about 23 percent of the state's total income in 2012, up from 9.6 percent back in 1979. Overall, the wealthiest 1 percent in Illinois earned nearly 30 times the income of the bottom 99 percent in 2012.

To increase tax fairness in Illinois, the report recommends that the state move to a graduated income tax system that applies higher rates to larger incomes and lower rates to smaller incomes, though such a switch would require a constitutional amendment. A more immediate solution could include increasing the state's "flat income tax rate while also increasing personal exemptions that eliminate the income tax on the first part of income," the researchers wrote.

"After 30 years of a middle-class squeeze, it's time to restore balance," the report reads. "One percent of taxpayers in Illinois get nearly two-and-a-half times the share of income they got 30 years ago--taxing them at less than half the middle-class rate is the wrong direction. Solving the budget deficit through tax fairness while restoring education and infrastructure will help revitalize Illinois' economy."

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