Ralph Martire, guest columnist: Making Illinois’ tax system fairer and boosting the state’s economy | Columns
For more than three decades, flaws in Illinois tax policy have had two very bad consequences.
Illinois created the classic definition of a “structural deficit” by allowing annual growth in state general fund revenue to generally be insufficient to cover the cost of providing the same level of services from year to year. the other. With more than 95% of General Fund spending in four key areas – education, health care, social services and public safety – the result is problematic. Add to that Illinois’ consistent ranking as one of the most unfair and regressive tax systems nationwide, and you have a painful bottom line:
If you’re low-income in Illinois, you pay a high tax burden, but funding for basic services that improve your community is low.
But a combination of good fortune, federal aid and smart choices has dramatically improved the fiscal outlook this year. So much so that Illinois now projects it will have a budget surplus of $3.4 billion in its general fund by the end of the year. To his credit, Governor JB Pritzker has offered to use a good chunk of that surplus to pay down existing debt, fund pre-existing bills Illinois owes for things like health insurance claims and aid programs. to colleges, and build up the Illinois Rainy Day Fund, to guard against unforeseen future problems – which is very responsible.
There is, however, one other fiscally responsible thing the state can do that will really help Illinois families: enact the initiatives detailed in Senate Bill 4920 and Bill 3774.
First, the legislation would improve the state’s existing earned income credit — increasing its dollar value as well as expanding eligibility to claim it. The Illinois EIC, which is based on the federally granted EITC, is a “refundable” tax credit for low-income workers. This effectively puts money in the pockets of the people who need it most. And we know it works. When benefits provided under the federal EITC were increased under the American Rescue Plan Act, nearly 1.5 million Illinois residents benefited.
The Illinois bill would also create a new refundable child tax credit to help low- or no-income families with dependent children. Again, we know it will make a significant difference if it becomes law. When the federal child tax credit was increased under ARPA, it benefited nearly 90% of Illinois children under the age of 17.
The expansion of the EIC and the creation of a child tax credit make perfect sense now. A growing chorus of advocates from all political walks of life recognizes the predicament facing low-income workers — the hardest hit by the economic damage of the pandemic and the hardest hit by soaring inflation. They believe these tax policy changes are the right thing to do – and the data matches.
For example, as noted earlier, Illinois has one of the most unfair tax systems in the country. In fact, Illinois’ tax policy is so regressive that it actually exacerbates the growing income inequality that has manifested itself in the state’s private economy over the past three decades. Indeed, between 1978 and 2018, 99% of Illinois households saw their annual income after inflation rise by 20%, a far cry from those of the top 1%, whose inflation-adjusted incomes rose by 20%. 254%, or more than 10 times more. . Expanding the EIC and creating a refundable child tax credit for low-income workers would counter this trend and help make Illinois’ tax burden fairer.
Yet we can still feel the very real and very painful economic aftermath of COVID-19 all around us: 17% of Illinois adults in rental housing are behind on rent payments. More than a quarter of adults here say they struggle to meet daily necessities like buying food, paying for housing or a car, or covering medical expenses.
Expanding the state’s EIC and creating a new child tax credit, as lawmakers have proposed, would give up to 4.8 million Illinoisans — or about 40 percent of the state’s population – at least $600 in tax refunds, would make state tax policy fairer, reduce poverty, and support low-wage workers. Best of all, those refunds will be funneled directly back into local Illinois economies. In fact, we estimate that the state’s private sector economy will achieve a stimulus that could exceed $1 billion if these credits are fully implemented as proposed – far more than the initial estimated cost of approximately $415 million. dollars.
Now is the time for Illinois to tackle income inequality head-on and give working families the relief they deserve. Expanding the state’s EIC and creating a child tax credit, as currently proposed, would be sound fiscal policy that will help Illinois capitalize on its fiscal good fortune.
Ralph Martyr is executive director of the Center for Tax and Budget Accountability in Chicago.