'Fair Tax' amendment dead; advocates concede defeat

<i>Update, 9:31 a.m. Wednesday, Nov. 4:</i>

With 98% of the vote counted as of Wednesday morning, the proposed "Fair Tax" amendment to the 1970 Illinois Constitution has gone down to defeat, roughly 55% to 45%.

The unofficial vote totals being reported are 2,735,485 "no" votes, to 2,237,103 "yes" votes.

To pass, the proposal had to receives 60% of the vote from those voting on the question, or a simple majority of the total votes cast.

The amendment would have removed a provision from the Illinois Constitution that requires any income tax to be levied at a flat rate on any level of income - the current rate is 4.95%.

@VoteForFairness conceded defeat Wednesday morning. Chairman Quentin Fulks said: "Now lawmakers must address a multi-billion dollar budget gap without the ability to ask the wealthy to pay their fair share. Fair Tax opponents must answer for whatever comes next."

Passage of the amendment would allow lawmakers to apply different tax rates on varying levels of income. Of the 42 states that have an income tax, 32 and Washington D.C. have a graduated rate structure, while Illinois is one of nine that impose a flat tax.

While the amendment itself did not set any tax rates, legislation already passed by lawmakers and signed by the governor would take effect in January if the amendment passes. The rates created by that legislation would apply to six tax brackets, ranging from 4.75% on income up to $10,000 to 7.99% on all income for individual filers making more than $750,000.

The new rate structure would have created six tax brackets, with rates applying to margins of taxable income instead of every penny of an earner's income, except for those in the top bracket. The rates would be:

4.75% on single or joint filers' first $10,000 of taxable income.

4.9% on single or joint filers' income from over $10,000 to $100,000.

4.95% on single or joint filers' income from over $100,000 to $250,000.

7.75% on a single filer's income from over $250,000 to $350,000 and joint filers' from over $250,000 to $500,000.

7.85% on a single filer's income from over $350,000 to $750,000 and joint filers' from over $500,000 to $1 million.

Once a single filer exceeds $750,000 or joint filers exceed $1 million, the top rate of 7.99% will apply at a flat rate to every penny of income. For all other earners, the previous brackets apply.

Those rates effectively meant anyone earning $250,000 or less will pay the same or lower income tax rates under the graduated structure, while those earning above that amount would pay higher rates.

The measure also raised the corporate tax rate to 7.99% from 7% and did not change the Corporate Property Replacement tax of 1.5 to 2.5% which already exists in current law.

Opposition, led in large part by the Illinois Chamber of Commerce, centered on what the tax would do to businesses and what lawmakers might do in the future if voters give them the opportunity to levy taxes on portions of the electorate at any one time, rather than on every taxpayer at once.

They also pointed out the added revenues would not cover state budget deficits amid the pandemic, and would require further tax hikes in the future, which could mean adjusting the brackets to raise rates on middle-income earners.

The idea, according to much of the advertising against the amendment, was that giving state politicians the authority to raise taxes on just a small group of taxpayers at any one time makes it easier politically to raise taxes, even though the simple majority vote threshold remains unchanged.

While those against the measure say the increase to the corporate tax rate would hit job creators hard at a time when the pandemic is already making it difficult to remain afloat, proponents note that businesses structured as pass-through entities – such as S corporations, sole proprietors and others who claim business income on personal taxes – would have seen taxes decrease if they earn less than $250,000 annually in taxable income.

In estimates released before the COVID-19 pandemic, the governor's office said the graduated tax was expected to bring in about $1.2 billion for the current fiscal year as it would be in place for only part of it, and $3.4 billion once it is in place for a full year.

Gov. J.B. Pritzker has said the amendment and the rates approved are all about raising more revenue without increasing rates on middle-income earners or making drastic budget cuts to state services, education and public safety.