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John Dillon. A fair tax in Illinois. Facts and terms.

February 5, 2014

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- By John Dillon. From his blog, Pension Vocabulary

A Fair Tax in Illinois? Facts and Terms to Use.

Graduated or Gradient? – Looking for Accuracy in a Fair Tax for Illinois

“This season affects me most – psychologically,” my wealthy friend Ernesto uttered between sips of cognac the other evening.

“It has been a brutal winter, Ernesto,” I offered hopefully, “but the end is coming with each day’s increasing sunlight.”

“I am talking taxes, my friend,” Ernesto responded, glowering. “I am imprisoned by your government’s exasperating 33% income tax. And, I suppose, you are now part of that progressive rabble that wishes the same – a graduated income tax in Illinois?”

“Goodness, Ernesto. Thirty-three percent indicates a significant income. I am happy for your success. May I ask what portion of your income is subject to this rate?”

“Why, all of it…just as you and your union bosses would wish in Illinois.”

“Actually, Ernesto, if Illinois were ever to move to a “Fair” tax system, one you would call progressive or graduated, the increases in taxation would occur as they do on the federal level – at thresholds or gradients. In other words, Ernesto, if you achieve $3000 above the threshold for 33% taxation (which is $226,850), you pay 33% on that $3000, not your entire earnings.

“In fact, Ernesto, you pay your federal tax like everyone else for all of our services for each of the thresholds as you move through them, my friend. That means you pay only 10% on your first $18,000, 15% on your next $56,000, 25% on your next $75,000, and so on. You don’t fall into a category where you pay 33% for all of your earnings. That’s why I use the term gradient tax system (or fair tax) rather than graduated when I talk about it. “

“You don’t know my pain…”

“In truth, Ernesto, you pay the same percentage tax as me until you move well beyond me…and then you pay extra for only those amounts above our joint threshold.”

“I see. Don’t you have anything better than Hennessey? Paul Ferrand or Skye?”

“Sorry, no. And that is how a fair tax would work in Illinois, Ernesto. We, both of us, would be taxed at higher levels for the amounts we earned above thresholds of income, not for all of it.”

“Ahhh, my friend. But you’re still stealing from me for being successful, are you not?”

“Well, not actually, Ernesto. In truth, you and I might actually be stealing from the greater population in Illinois who pay more dearly for their services – education, protection, healthcare, roads and transportation – than we ever will. And, if we’re not stealing, we’re certainly getting a better deal for it all.”

“Ridiculous.”

“Not so, Ernesto. The average earner in Illinois pulls in $47,485 annually. At 33%, I know that you pull in much more, and I’d venture nearly ten times that amount. Nevertheless and without denial, let’s review our numbers. Suppose Mr. Average needs a new car for his family and purchases a solid sedan at $25,000. I see by your scowl that such a concept is impossible. Will you accept $40,000? “

“Only if I have to…”

The taxes on this family’s precious purchase will be several – New Vehicle Tax, Cook County Home Rule Tax, Cook County Sales Tax, possible Chicago Home Rule Tax…and others. Those taxes, Ernesto will run to nearly $3,000 – or almost 7% of the earner’s annual salary. “

“And…?”

“For an income earner like you? A mere .6% of your salary. Ernesto, you would need to purchase at least ten of these vehicles to begin to feel that same impact on your income. That is something, I might add, you would not and never need do. But it does illustrate a significant difference in our relationship with tax requirements, doesn’t it? We get away with a lot, my friend.

“Add to your and my advantages the costs of milk, gasoline, clothing. Costs of living and taxes for these average workers, Ernesto, drain huge portions of their ability to live, and we are not talking disposable income.

“Indeed, what you and I pay for the protection of police and fire, for our schools, for transportation, health services, and other benefits is a steal, Ernesto. Don’t we owe it to make it more even?”

Silence.

Note to self: Purchase Paul Ferrand for next get-together.

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