A colleague asks, “Why tax the rich?”

Fred,

Good speech as always. I am wondering why you believe the “rich” should be the ones to pay our pension? Don’t you think the state should follow through with THEIR promises instead of taking our money? Don’t you think our politicians need to look at government and see what went wrong there? I am concerned if we tax the rich more, they will not spend their money like we need them to. Some of them have also worked hard for their money. Why should they suffer for that? Personally, I would like to see the rich SPEND their money to boost our economy.

Just sayin’…….

-Joanie Heavey

Dear Joanie,

I’m glad you asked. Although we worked together for many years, it isn’t as if we frequently discussed tax policy. Sometimes I assume things that shouldn’t be assumed. And your questions give me an opportunity to explain why a progressive graduated income tax is essential to addressing the state’s economic problems.

“Don’t you think the state should follow through with THEIR promises instead of taking our money?” you asked.

Absolutely.

But where does the government get its money?

From taxes.

Illinois is one of those rare states that has what is called a flat income tax. That means that everyone, no matter how much they make, gets taxed at the same rate. But as you can imagine, if you only make $30,000 a year then 5% is a much bigger hit than if you make a million dollars a year.

5% of 30,000 leaves that person with $28,500, not counting federal and other taxes. 5% of a million leaves $950,000. Plus the rich are more able to take advantage of tax loopholes. Remember Mitt Romney’s federal taxes were only 13%. How does that compare to yours?

Most states and the federal government have a graduated income tax. Those who make more pay a higher percentage, although in my opinion not nearly high enough, than those who make less.

Not only is this fair but it also provides the state with the funds it need to provide the services we need. Not that there isn’t waste and thievery. The number of Illinois politicians in jail proves that.

Even so, the state’s low tax – low spending practice has meant closing mental health facilities, early  childhood centers, laying off state workers and, of course, our unfunded pension liability.

Illinois is one of the lowest spending and lowest taxing states in the country. And even though it spends so little on education and social services, it still doesn’t have enough money to pay its bills.

Your intuitive guess that if the rich weren’t taxed they would invest their money turns out not to be true. Lower taxes on the rich encourages them to either save their money or buy things for themselves. It is higher taxes that encourage the rich to invest in things that produce jobs. So a graduated income tax has the double benefit of helping the state meet its obligations and encourages the private sector to create jobs.

Back in the fifties, before the Reagan tax cuts for the rich, those in the top income bracket were taxed at 90% if they kept their money in bank accounts or bought yachts. Only by reinvesting their money could they avoid taxes, so they did.

And they still had enough left over to buy their yachts.