'Millionaires' Tax' Would Give IL Cover To Hike On Everyone

As Illinoisans head to the polls, they’ll be voting on more than just candidates. At the top of the ballot, they’ll also see an advisory question with serious implications on the state’s population loss problem. Though framed as little more than an opinion poll on a new tax on the rich, the “millionaire’s tax” ballot question would set the stage for a bevy of new taxes on the middle class.

Voters will be asked to either support or oppose a theoretical amendment to the state constitution to create an additional 3% tax on income exceeding $1 million in return for unspecified property tax relief. Were such an amendment to pass, it would end the state’s flat income tax.

While presented as merely an “advisory question” rather than a binding referendum, in reality it gives lawmakers permission to move forward policy legislation. In this case it means a Trojan horse for middle-class tax hikes, as eliminating the state’s flat tax to add a millionaire tax bracket would give lawmakers the power to raise tax rates on the middle class in the future — a privilege that Springfield legislators would doubtless make ample use of as they seek to address long-term budget imbalances. Illinoisans already soundly rejected such a scheme in 2020, when they rejected the progressive income tax in 2020, 53% to 47%.

The concept of a millionaire’s tax sounds fine enough, as most of us aren’t millionaires. The problem is, many small businesses are taxed through the individual income tax code. This tax hike would lead to fewer small businesses and fewer job opportunities.

And what would average Illinois taxpayers receive in return for this seismic shift to the state’s income tax structure? A short-term revenue boost, followed by long-term pain as the exodus of the state’s wealthiest residents accelerates and the state has less revenue.

The most recent IRS data, which looks at taxpayers’ moves between 2020 and 2021, shows that Illinois lost a net of over 45,000 households and nearly $10 billion to other states, driven primarily by a net loss of over $7 billion among the wealthiest taxpayers. All those moving vans add up — over the preceding decade, the state lost a net of over $63 billion to other states.

Advocates of this tax point to that aforementioned revenue windfall and promise property tax relief. And to be sure, another state that recently implemented a new millionaire tax, Massachusetts, has already been declaring victory over $1.8 billion in additional tax revenue from the tax. But that didn’t lead to broad-based tax relief for everyone else in Massachusetts, as legislators always have a million ideas for spending your money.

There’s little reason to think it would here, either. In Illinois, the revenue raised from the proposed “millionaire’s tax” would be between $2-3 billion short of covering even the state’s own budget shortfall, let alone providing property tax relief. After all, the Pritzker administration has already benefited from $35 billion in federal aid and higher-than-expected tax revenues without doing anything to reduce Illinois’s second-highest-in-the-nation property tax burdens, so why would a projected $3-4.3 billion in “millionaire’s tax” revenue change that?

And the consequences of millionaire tax hikes are far worse in the long term. A recent study by Boston University researchers estimates that within a decade, Massachusetts will be on track to nearly quintuple its rate of outmigration, losing a net of $19.2 billion in 2030 compared to $3.9 billion in 2021 — largely due to the state’s high taxes. Suddenly, an extra couple billion dollars in revenue today seems like a bad deal tomorrow.

Should Illinois see a comparable increase in outmigration, the state would be losing a staggering $48.4 billion each year by the end of the decade — almost the same amount as this past year’s budget. Considering that Illinois is already facing scary budget realities for the future, such as $142 billion in unfunded pension debt, the long-term budget picture needs to take precedence.

Once these even more difficult fiscal times arrive, Springfield legislators would have an opening to levy higher income taxes on middle class taxpayers, who would have given them permission do so with this vote. The only solution to revenue shortfalls as wealthier taxpayers head for greener pastures would inevitably be higher taxes on those unfortunates who are left.

If this advisory question passes, nothing changes – but if voters approve it, they’ll be unwittingly giving cover to politicians to push legislation that’ll lead to tax hikes on everyone. Instead of asking voters yet again for permission to institute a graduated tax, legislators in Springfield should be asking themselves why their residents keep trying to leave in the first place.