We hear a lot about fairness in Springfield these days.
We are told that our tax system is not fair. However, in Illinois, we always have had a flat income tax that fairly taxes everyone at the same rate. Anyone earning income pays the same tax rate regardless of their income. If a family makes $1 million per year, they now pay $50,000 in Illinois taxes. If they make $25,000 per year, they pay $1,250 in Illinois taxes.
What could be fairer than a simple flat tax rate?
Democratic leaders now believe the rules need to be changed, and they want to tax the income of small businesses and high wage earners at a higher rate. Democratic leaders have proposed adding a clause to the Illinois Constitution to apply a 3 percent income tax increase on any income exceeding $1 million, which would not be indexed for inflation.
The Democratic leaders in Springfield want taxpayers to believe their proposal is designed to change the rules in favor of the less fortunate. They want taxpayers to believe they are just asking wealthy individuals to simply pay their fair share, but the truth is the overwhelming number of tax returns filed with incomes greater than $1 million come from small business owners.
About 82 percent of Illinois tax filers with income above $1 million reported income from Schedule E (SubChapter S Corporations, LLCs and partnerships) flow-through entities that are taxed at the Illinois individual tax rate. In other words, most of these returns come from small business owners. The vast majority of construction, manufacturing and transportation companies in Illinois are SubChapter S corporations that pay taxes at the individual tax rate. Raising taxes on industries with high-paying jobs is the last thing we need to do right now.
Small business owners account for about 80 percent of all new jobs in Illinois. Taxing small business will cripple an already ailing economy. At 8.7 percent, Illinois has the second-highest unemployment rate in the country. Taxing job creators is only going to lead to fewer jobs in Illinois, and, ultimately, hurt working families. Small business owners might have to cut hours to reduce costs, eliminate bonuses and eventually lay off employees. The people who will be most affected by the so-called “surtax” are the people who can least afford to lose their jobs.
Additionally, the Democratic leaders’ unfortunate assumption behind the tax on millionaires is that the Legislature will vote to make the 67 percent “temporary” income tax increase permanent. Taxes are scheduled to go down to 3.75 percent in 2015, but Gov. Pat Quinn and the Democratic leaders are feverishly working to make sure the tax rate stays at 5 percent. So while Democratic leaders push their tax hikes on small business owners, they also are quietly moving to also keep taxes higher on everyone else.
In 2010, for small business income above $1 million, the individual tax rate was 3 percent, and, in 2015, the tax rate would go to 8 percent (5 percent permanent tax rate plus 3 percent surtax). Raising taxes by 167 percent on small businesses is a sure way to kill jobs.
In 2008, Maryland raised tax rates on income over $1 million per year. That year, there were about 3,000 tax returns for more than $1 million filed. One year later, only 2,000 tax returns for more than $1 million were filed. I’m convinced that the adoption of the 3 percent job-killer tax in Illinois could actually lead to a decline in revenues for the state of the Illinois.
What Illinois needs is a growing economy, and taxing job producers is only going to hurt the people Democratic leaders claim they want to help. Illinois already is on a path to having the worst job growth rate in the entire country. Taxing job creators will make it more difficult to create new jobs in Illinois.
Let’s stop the madness and defeat the tax increase proposals.
• David McSweeney, a Barrington Hills Republican, represents Illinois’ 52nd State Representative District.