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Monday, January 27, 2020

Illinois Policy Institute does the math, finds that Pritzker's progressive-tax plan does not add up

State Government

By Glenn Minnis | Mar 14, 2019

Gov. J.B. Pritzker |

Nothing about Gov. J.B. Pritzker’s proposed “fair tax” proposal strikes Illinois Policy Institute (IPI) analysts as being just.

“Pritzker’s revenue projections overstate by nearly $2 billion the amount a progressive income-tax hike would actually bring in,” the website reported in a March 11 piece after the new governor boldly pegged expected revenue from the tax somewhere in the neighborhood of $3.4 billion during his first official budget address. “The administration’s failure to recognize responses to a progressive income-tax hike means the tax will not deliver the revenue the governor anticipates.”

Even in a best-case scenario, where IPI analysts relied on static data from the Internal Revenue Service’s “Statistics of Income,” or revenue estimates that assume no feedback from taxes to aggregate income as opposed to dynamic estimates that take into consideration all such variables, Pritzker’s projections fall at least $1 billion short of government forecasts. To be more specific, in removing the state’s flat tax rate, Pritzker’s plan anticipates personal income-tax revenues growing by 11.2 percent, while corporate income-tax revenues are scheduled to increase by as much 13.6 percent.

In either case, those are numbers with which IPI analysts don’t readily see eye to eye.

“The evidence suggests there are large feedback effects of policy changes on economic behavior,” the article adds. “Cuts in personal income taxes lead to a fall in tax revenues, while corporate income-tax cuts on average have little impact on tax revenues. Cuts in average personal income-tax rates raise employment, consumption and investment. Cuts in average corporate income-tax rates boost investment and do not affect or even lower private consumption. The opposite is also true: Tax increases have a large negative effect on investment.”

Pritzker has been pushing the idea of a progressive tax since his days on the campaign trial and recently doubled down on the concept during his late February budget address.

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