He unfavorably compares our governor with the Indiana Governor, Mitch Daniels, who seeks to raise the income tax from 3.4 percent to 4.4 percent on any income earned over 100 large.
The part that Roeser is missing is a concept called the federal offset.
That's the amount of state taxes paid that is effectively subsidized by the federal government.
I'll bet Mitch Daniels understands that very well, as President Bush's former budget chief.
Basically, if you tax high incomes, the federal government subsidizes those taxes paid by about a third. If you tax low incomes, the feds do not.
That's because of the following federal income tax rate table (read it from the IRS here).
|$0||$7,300||10% of the amount over $0|
|$7,300||$29,700||$730 plus 15% of the amount over 7,300|
|$29,700||$71,950||$4,090.00 plus 25% of the amount over 29,700|
|$71,950||$150,150||$14,652.50 plus 28% of the amount over 71,950|
|$150,150||$326,450||$36,548.50 plus 33% of the amount over 150,150|
|$326,450||no limit||$94,727.50 plus 35% of the amount over 326,450|
Which basically means for income over $150,000, the feds tax a third of that.
Keep in mind the main reason why the federal government is running massive deficits is because the tax rate on income abover $326,450 went from 39.6% to 35%.
That's the change.
Those people are the Republican base.
And if you are paid less than $350,000 a year, it is in your economic interest to vote for Democrats who will raise the rate back to 39.6% -- you won't pay any of that. And then we won't have to pay the interest on the debt for the next 40 years from the wealthy refusing to pay their fair share of government during this decade.
But, back to the state government.
If your state government levies a tax on the people with a federal tax rate of 33% or more, then for every dollar those guys pay in state taxes, they pay 33 cents less in federal taxes (because state taxes are deductible off federal taxes paid).
That's a huge bargain for the state, and a way to keep wealth in the state instead of exporting it to D.C. (where it gets sent to Iraq).
Indiana is making a smart move by taking their high-income people at a very reasonable 4.4% -- because that state tax increase will be offset by Indiana residents sending less money to D.C.
Too bad Blagojevich -- or Thomas Roeser -- doesn't seem to grasp the power of the federal offset of state taxes.
Representative Will Davis does. He's got a bill (disclosure: I'm working on it with him) to raise our income tax rate to 4%, but alleviate the burden on lower-incomes by raising the standard exemption and the earned income tax credit. The bill is HB 155 and it is here.
This bill needs co-sponsors. Call your state representative and ask him or her to co-sponsor HB 155. And let's keep our wealth in Illinois.