From our friends at Center for Tax and Budget Accountability
Flip It to Fix It:
An Immediate, Fair Solution to State Budget Shortfalls
Invert State Tax Structures To Eliminate State Budget Deficits
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Chicago, IL (May 25, 2011) - A new study released today by the Center for Tax and Budget Accountability and United for a Fair Economy has found that inverting state and local tax structures - whereby the highest income earners would be taxed at the current percentage of income for the lowest income earners and vice versa (so that taxes for the bottom 60 percent of households would be reduced or unchanged) - would collectively raise $32.5 billion in new state and local revenue for Illinois (a 56.2% increase in public revenue), immediately eliminating state and local budget deficits and avoiding the serious consequences of budget cuts.
The report, titled "Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls" attributes a large part of states' current deficits to the regressive tax structures that the report shows are designed to fail.
"Trying to raise adequate revenue through a regressive tax structure-where a greater percent of income is demanded of the poor than the well-off-is like trying to squeeze water from a stone," said Karen Kraut, coordinator of state tax policy at United for a Fair Economy and co-author of the report.
In 2007, the bottom 20 percent of households in Illinois paid 13 percent of their income in sales, property, and income taxes, the third highest share of 50 states and the District of Columbia, and more than three times the share paid by the top 1 percent (4.1% according to Institute on Taxation and Economic Policy 2007 data, "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States," Third Edition, November, 2009). But though Illinois imposes a high tax burden on the lowest income households, of 41 states with an income tax, Illinois was tied for fourth lowest individual tax rate on households in the top income bracket (Federation of Tax Administrators, February 2011, see: http://www.taxadmin.org/fta/rate/ind_inc.pdf ).
"The inadequacy of regressive tax structures puts everything we value at risk: the well-being of families, the future competitiveness of the American workforce, and the nation's ability to rebound from the recession and prosper," said Kraut.
The report contends that an inverted tax structure not only solves budget crises, but increases equity and best spurs steady and strong economic activity. The national coalition calls on states to adopt its proposed progressive tax reforms, many of which are immediately achievable and will help solve state deficits.
"By enacting a progressive income tax, Illinois could reduce taxes for the bottom 80 percent of families and still raise billions of dollars more in state revenue. For example, based on 2007 Illinois Department of Revenue data, 28,999 millionaire filers* contributed over $ 1.7 billion in state tax revenue of Illinois' $9.2 billion in total 2007 individual income tax revenue, despite paying an effective tax rate of 1.3%, about half the effective rate of other middle income filers," according to Ron Baiman, Director of Budget and Policy Analysis at the Center for Tax and Budget Accountability, a bi-partisan nonprofit fiscal policy think tank in Chicago, IL.
As we go to press, the Illinois General Assembly is considering a Fiscal Year 2012 budget that cuts vital public programs, which in turn leads to layoffs for public service providers. Such moves increase unemployment and weaken economic recovery.
At the heart of the budget crisis facing Illinois is a regressive state tax structure that is unfair, unsound, and unsustainable. Fortunately, inverting the state's current tax structure presents a sensible solution.
Key findings:
· An inverted tax structure for every state would raise a combined $490 billion in new revenue, immediately eliminating state budget deficits.
· A cuts-only approach to state budget deficits is shortsighted-imposing immediate harm on families, while dampening economic recovery and compromising the future competitiveness of the American workforce.
· A progressive tax structure provides commonsense equity, economic efficiency, and adequate revenue to invest in communities and spur economic growth.
Read the full "Flip It To Fix It" report and find a state-by-state breakdown at http://www.faireconomy.org/flipitreport .
*This is less than half of 1 percent of Illinois' 6 million tax filers. |
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The Center for Tax and Budget Accountability (CTBA) is a partner of United for a Fair Economy through its program, the Tax Fairness Organizing Collaborative, a network of statewide organizations in 24 states working to reduce economic inequality through progressive tax reform.
The Center for Tax and Budget Accountability, located in Chicago, IL, is a bi-partisan 501(c)(3) research and advocacy think tank that promotes fair, efficient and progressive tax, spending and economic policies.
