Economist: Illinois’ progressive tax could exacerbate poverty, income inequality
By Greg Bishop
The Center Square
SPRINGFIELD – An economist from a nonpartisan think tank said poverty rates could climb if Illinois changes from a flat income tax to a structure with higher rates for higher earners.
Illinois’ poverty rate is about 14.3 percent, which is right in the middle of the pack of all U.S. states and territories.
State Rep. Kelly Cassidy, D-Chicago, said the soon-to-be new adult-use cannabis industry will help address poverty in Illinois with more jobs.
“There are estimates from the (Illinois) Economic Policy Institute of tens of thousands of jobs that could be created within that industry,” Cassidy said.
State Rep. Will Guzzardi, D-Chicago, said another industry to create more jobs is the green and renewable energy sector. He said impediments to employment, such as punishments that prohibit people from being able to drive, need to be addressed.
“When you talk about addressing poverty, it’s those kinds of fundamental things of ‘how do I get to my job every day,’ that are incredibly important in the lives of poor people,” Guzzardi said. “So we take a holistic look at it.”
Democrats also want to address income inequality, and some have said changing Illinois flat income tax to one with higher rates on higher earners will help.
Illinois Policy Institute Chief Economist Orphe Divounguy said research shows tax increases hurt the economy and the move to increase taxes on small businesses through a progressive income tax could increase poverty. He cited Connecticut as an example.
“The U.S. economy was booming, poverty rates were falling across the country, poverty rates actually increased in the state of Connecticut,” Divounguy said. “And 70 percent of that increase in poverty rates could be directly accounted for by the change to a progressive income tax in 1996.”
Divounguy said implementing a progressive income tax could also exacerbate income inequality by limiting investment in new jobs.
“If you’re pricing out people from the labor market, you’re actually increasing inequality, so this policy could be actually disastrous for the state of Illinois and for those people who actually need a leg up,” Divounguy said.
Not everyone agrees. The Illinois Economic Policy Institute has said a well-designed progressive income tax could help small businesses.
A progressive income tax would transform Illinois’ tax code by bringing middle-class tax burdens down towards rates in neighboring states,” Robert Bruno and Frank Manzo wrote in an April report. “Moving to a graduated-rate structure could make the state’s tax code fairer, cut income taxes for working-class and middle-class families, provide opportunities for property tax relief, help balance the budget, and provide revenue to fund essential public services that contribute to the growth of the Illinois economy.”
Voters will decide if Illinois adopts a progressive income tax in next year’s general election.