STUMP » Articles » Taxing Tuesday: For Illinois, I Foresee PAAAAAAIN » 22 January 2019, 21:38

Where Stu & MP spout off about everything.

Taxing Tuesday: For Illinois, I Foresee PAAAAAAIN  

by

22 January 2019, 21:38

Oh wait, y’all are already in PAAAAAIINNN?

Tough.

NEW ILLINOIS GOV HAS THE MESS TO DEAL WITH NOW

Well, it’s really the same legislature, so the governor ain’t going to be dealing with much.

Pritzker to meet ‘bad faith’ opponents of progressive tax with ‘considerable political will’

Illinois Gov. J.B. Pritzker said he’ll work with minority Republicans, but warned that partisan opponents to the idea of a progressive tax will be met with “considerable political will.”

After taking the oath of office, the Democratic billionaire governor took direct aim at opponents of taxing higher earners a higher percentage of their income. He said anyone who joins the tax conversation in good faith has a seat at the table.

“But if you lead with partisanship and scare tactics, you will be met with considerable political will,” Pritzker said.

It is going to be hilarious when he’s going to have to go up against his own party.

Pritzker and other supporters of a progressive, or graduated, income tax have said taxing people more based off their wealth will bring more money into the state’s coffers. Opponents of changing the current flat income tax in the constitution to a tiered structure will lead to more burden on small business operators, or could lead to wealthy people moving out of the state.

I’m going to guess this is just poorly-worded.

Remember that whole “math journalists need to know” post?

How about basic finance journalists need to know: the distinction between income and wealth.

Any change to Illinois flat income tax structure would require support from three-fifths the public in a statewide referendum.

I believe it also has to get through the legislature.

One piece of legislation filed at the statehouse by Rep. Robert Martwick, D-Chicago, had specific rates and income levels for a progressive tax. In the 100th General Assembly House Bill 3522 proposed changing the tax rates to 4 percent for income up to $7,500, 5.84 percent for income up to $15,000, 6.27 percent for income up to $225,000 and 7.65 percent for income over $225,000. That measure was tabled.

The current rate is 4.95 percent, up from 3.75 percent after last summer’s $5 billion income tax hike.

So.

Do I have to point out the obvious here?

The rates would be higher for all except that ginormous income level of $7,500.

The bottomline is that everybody knows that the tax rates in Illinois have got to come up if they can even pretend to pay off all their obligations (not just the pensions, but also the bonds, and for crying out loud, vendors bills for current expenses.)

AND that’s before whatever “let’s give everybody goodies!” plan Pritzker throws out there.

Democrats have supermajorities in both chambers to pass a progressive tax, but the question is ultimately up to voters.

Well, duh… inasmuch voters keep voting these bozos into office.

So the question is: will it even go to a referendum? It has to get through the legislature. Who wants their name on an across the board tax increase, where the only decrease is for extremely low incomes?

Here’s a different proposal to fill Pritzker’s appetite:

The reality is Pritzker can only get all the revenues he wants by hitting middle-income Illinoisans. To achieve his minimum spending targets, Wirepoints’ found that the middle class with incomes of $50,000 and above would have to be hit with higher taxes.

Under the above scenario, an Illinoisan with $75,000 in taxable income will pay nearly $900 more in taxes, up 24 percent compared to the current flat tax of 4.95 percent.

Again, as per journalism math, one needs to understand that “only” a few percentage point increases in a tax rate can end up with a huge percentage increase in the item itself.

You think folks will be happy with a 24% increase in their taxes? Or higher?

And for two married, career teachers earning a combined $138,000 in taxable income (the average Illinois teacher salary is nearly $71,000 according to COGFA), the progressive scheme would hike their taxes 50 percent, to $10,270 a year, up from their current $6,831 bill.

Wirepoints also ran tax scenarios that avoided hitting the middle class. We found that if Pritzker’s progressive taxes only raised rates on the “truly” wealthy, then Illinois’ top tax rate would have to reach absurd levels. For full details, read Wirepoints special report: What Pritzker’s progressive tax rates will probably look like.

So. I think the Republicans may just step back, because it’s really a fight between Democrats.

FIGHT FIGHT FIGHT

HISTORY OF HIGH TAX RATES

I don’t really care about AOC’s blabbering about 70% marginal tax rates. But it does help to have some historical perspective.

How Wealthy Americans Like Jack Benny Avoided Paying a 70% Tax Rate

It wasn’t that long ago, in 1980, that America had a top income-tax rate of 70% for individuals, nearly double the current top rate of 37%.

And it wasn’t unusual. From 1940 through 1980 the top rate for the highest earners never dipped below 70%. During most of the 1950s, when the U.S. economy dominated the world, the top rate was 91%. It kicked in at $400,000 of taxable income, or roughly $3.7 million in today’s dollars.

….

But make no mistake: Many top earners during the high-rate era, such as politicians Dwight Eisenhower and Ronald Reagan, entertainer Jack Benny and librettist Alan Jay Lerner, didn’t pay the top rates. In 1952, for example, when the top rate was 92%, the highest-earning 1% of taxpayers had an average rate of 32%, according to Elliot Brownlee, a tax historian and emeritus professor at the University of California, Santa Barbara.

“When top tax rates were high, there was always a large gap between the stated rates and what the highest earners actually paid as a percentage of their income,” says Joel Slemrod, an economics professor at the University of Michigan.

Now, of course, marginal tax rates apply only above certain (adjusted) income levels, so the overall rate will be different.

But the main point is that really rich people can hire the folks to exploit all the legal loopholes that are in the code. The more complex the tax code, the more of a boon it is for people like me and a few other of my friends in finance — this is why you see various “business” interests lobbying for higher taxes. No, it’s not because they are feeling virtuous or any such blather — it’s because they make money by selling tax-advantaged strategies to wealthy people.

Thank you!

via GIPHY

More:

Top earners avoided high rates in many ways. Then as now, a favorite strategy was to have income that qualified as long-term capital gains, which are usually taxed at far lower rates than ordinary income such as wages.

The rules defining gains were looser then. In 1948, when CBS offered Jack Benny more than $2 million to bring his radio show to the network, he was able to treat it as capital gain, reducing the tax rate to 25% and saving him perhaps $800,000.

Gen. Dwight Eisenhower also successfully argued that $635,000 he earned from his 1948 memoir, “Crusade in Europe,” should be treated as a capital gain, saving him as much as $400,000 of tax, says Joseph Thorndike, a historian with Tax Notes magazine.

….
Mr. Reagan complained that high top tax rates discouraged work and sometimes claimed he stopped acting for the year when his income reached the 90% bracket. Some doubt this, but there’s no question that Reagan’s fervent opposition to high top rates helped end them. The Tax Reform Act of 1986 purged many special breaks and lowered rates dramatically.

Since then, the U.S.‘s top nominal income-tax rate for individuals has never exceeded 39.6%.

And again, that’s nominal. Very few people have an average rate close to that top rate.

WHY IS SATIRE ACTUALLY TRUE?

The Babylon Bee has become my fave go-to source for satirical news — and I may as well stick to it if it keeps reporting actual news.

Poll Finds Most People OK With Raising Taxes On Other People

U.S.—In a stunning new poll, Americans indicated they are OK with a 70% marginal tax rate, indicating that since the hefty taxes would only apply to other people and not themselves, they are alright with the extremely high taxes.

“See, a lot of people think the proposed 70% tax rate is way too high,” said one woman in California. “But what they don’t understand is that the 70% is only on really rich people—-in other words, not me. Let’s crank it up to 90, 100, or 110% even. I don’t mind in the slightest.”

….

“I am a very generous person, so I believe everyone else needs to pay their fair share,” said Lyle Hartright of Maine. “Everyone that isn’t me, I mean.”

“These are stunning results,” said one analyst. “We always believed that Americans were generous, but we never knew how generous. To offer to raise taxes to 70% or more on other people just goes to show how much compassion people have.”

Of course, it’s not news at all.

The reason that Americans generally aren’t into these high tax rates, though, is that they know it doesn’t mean “not me”. To begin with, there’s not enough “other people” to pay for all the goodies that various people keep promising.

Hell, there’s not enough rich people to pay for the promises (Social Security, Medicare, public pensions, decades of deficit spending turned into Treasury bills and municipal bonds) ALREADY MADE. So yes, if the promises are going to be fulfilled, the base on which higher taxes will be imposed has to be quite large in order to actually “work”.

TAX STORIES

I am waiting for the stories about the unfortunate people who have to pay higher taxes after the 2017 tax law… oh wait, that they just didn’t get as much of a tax cut as those living in lower-tax states.

Well, we’ll see.

TAX TWEETS

You get…. NOTHING!

via GIPHY

I could say that it’s because twitter is a shithole (it is… for some people. Not for me. My finance twitter is fun! (keep in mind I track public pensions as a hobby, so…..)) but that’s a lie.

It’s because I’ve had a long day, I’m tired, and I don’t want to compile tax tweets. Maybe next week.

See ya!


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