Wednesday, May 30, 2007

Michigan Speaker: We might move to replace flat tax with a progressive tax

Good news out of Michigan that might inspire our elected officials here: the Speaker of the Michigan House is pushing for a constitutional amendment to replace that state's flat income tax (currently set at 3.9%) with a graduated or progressive income tax where higher incomes are taxed at a higher rate and lower incomes are taxed at a lower rate.

article in the Livingston Press and Argus explains the dynamic:

Top House Democrats also made clear that they want to go to Michigan voters in November 2008 to ask for a constitutional change to dump the state's flat-rate personal income tax, now at 3.9%, in favor of a graduated income tax with higher rates for taxpayers who earn more.

House Speaker Andy Dillon, D-Redford Township, said he and Senate Republicans were negotiating to raise the personal income tax, expand the state's sales tax to include entertainment, such as tickets to concerts and games, or combine both tax options.

Dillon gave 50-50 odds that the House would vote on the tax increase this week, as he and fellow Democrats continued to woo Republicans, partly by showing a willingness to support new laws designed to rein in government costs.


Dillon said a graduated income tax should give lower-income taxpayers a tax cut. "It's progressive. Those who have the means can pay," he said.

Michigan's constitution prohibits a graduated tax, and voters have rejected attempts to adopt one several times. Putting it on the ballot requires a two-thirds vote of the House and Senate. Most states have a graduated tax.

Senate Republicans would consider a graduated tax only if a solution to the current budget deficit could be found without a tax increase, said Matt Marsden, spokesman for Senate Majority Leader Mike Bishop, R-Rochester.

We should put on the November 2008 ballot a constitutional amendment that asks the voters whether we should continue to outlaw a progressive income tax.

Bills to do so are HJRCA 23 (Will Davis and Barbara Flynn Currie) and SJRCA 7 (Martin Sandoval and Michael Frerichs).

Thanks to the Citizens for Tax Justice newsletter for the tip on Michigan.

The tax debate has not settled on rich and poor districts. Yet

We advocates of a progressive income tax so the wealthiest pay more than they do now have not done a good job explaining how lower and middle class incomes are, in fact, most people in the state. And that means most legislators represent lower and middle class incomes, so ought to push for higher income taxes on higher incomes because people in districts with lower and middle incomes don't pay higher income taxes.

I started to wonder which districts were wealthier and poorer. Fortunately, the UIS puts out the Almanac of Illinois Politics that lists the median family income of each legislative district.

I went through and pulled out all of the Senate districts. Then I sorted from poorest to wealthiest.

Since the average income is just shy of $60,000, any district with a median family income less than that would benefit from raising taxes on family income above $60,000, essentially.

Who are those districts? Here they are.

34631 Munoz
35334 Hunter
38383 Forby
39115 Delgado
41451 Collins
41524 Ronen
41623 Martinez
41951 Jones
43361 Hendon
43479 Sandoval
43642 Demuzio
43655 Sullivan
44181 Trotter
44569 Koehler
44719 Clayborne
46139 Righter
46249 Frerichs
47399 Luechtefeld
48313 Syverson
48644 Raoul
48921 Jacobs
49156 Watson
50138 Meeks
50527 Sieben
52298 Haine
52458 Jones
52903 Lightford
53623 Dahl
54027 Risinger
55466 Halvorson
55602 Bomke
56081 Viverito
57290 Rutherford
57393 Wilhelmi
58405 Brady
60254 DeLeo
60749 Noland
61571 Harmon
62113 Burzynski
62407 Silverstein
63662 Maloney
64391 Holmes
66997 Crotty
69839 Bond
70923 Pankau
71762 Althoff
71951 Kotowski
74580 Link
80735 Millner
80889 Cronin
81073 Lauzen
85163 Murphy
87664 Hultgren
88700 Radogno
91877 Peterson
92565 Dillard
94302 Cullerton
99857 Garrett
100722 Schoenberg

Interesting, isn't it? Lots of Downstate districts are poor, including Downstate Republican districts. But anecdotal evidence suggests Downstate voters have not yet embraced a progressive income tax, even though it's to their economic advantage. That's a public challenge we progressive tax advocates need to meet.

[Update: typo fixed after seeing it on the front page of Capitol Fax -- thanks Rich/Paul]

Saturday, May 26, 2007

While Illinois underinvests in transit, kids and health, we spend $100 billion for Iraq

There's a disconnect.

In Illinois, we're facing much higher transit fares, much less transit service, fewer class hours, fewer after-school activities for children, fewer congestion-beating road and transit investments and more untreated sick residents because there isn't any money for investing in transit, schools, health care and other priorities. We might expand gambling in order to finance these quality-of-live investments. And this debate is happening in every state that wants to invest in people -- there just isn't enough up-front money to make the smart investments that will pay off for everyone.

Meanwhile, our federal government has just approved spending $100 billion for the war in Iraq.

That is so much money. All for somebody else's civil war.

Stop funding this war.

Tuesday, May 22, 2007

Great petition to stop gas gouging -- sign online right now

MoveOn PAC has an excellent petition to call on Congress to stop price gouging and has one of the biggest responses of any of their online petitions of all time.

To the bill: it's not just the world price of crude oil that is causing huge gas prices (Illinois actually has the highest gas prices). The profits of the oil companies are at all-time highs, even though the price of crude is lower than at this time last year, and there's a bill in Congress that would make gas gouging a federal crime.

Sign this petition here and if that doesn't work, try

It often seems like there's nothing we can do about high gas prices (besides using less gas), but this legislation offers the hope that our government can stop the oil companies from ripping us off.

Here is the excellently-written email snip from MoveOn that explains the bill and the context better than I have:

As of yesterday, gas prices are the highest in U.S. history—we just passed the 1981 record, even adjusted for inflation. Prices could reach $4.00 per gallon in parts of the country, just in time to crimp summer vacation plans. As consumers suffer, the oil industry continues to reap the windfall—breaking profit records on an almost quarterly basis. It's outrageous!

Enough is enough. Hearings start today on H.R. 1252, a House bill that would make gas price gouging a federal crime, punishable by 10 years in prison. Speaker Pelosi has said she'll move the bill to a vote this week—if there's the two-thirds majority required to fast track the bill through the process.2

Oil company lobbyists are frantically trying to stop the bill. Your representative needs to hear from you today. Will you sign our petition asking Congress to pass the price-gouging bill—and then send it to your friends?

"Gasoline price gouging should be made a federal crime before the summer price increases hurt more American families."

Rep Bart Stupak (D-MI), sponsor of the House bill said this of his motivation to introduce the legislation:

"In April ... crude oil was $7 a barrel cheaper than last year (but) gas prices were almost 50 cents a gallon higher. Clearly there's more at play than simply the world crude oil market."

Monday, May 14, 2007

Now is the time for Tax Fairness in the General Assembly

The debate on implementing tax fairness just opened up.

I think there's a fairly firm consensus in the General Assembly that our tax system is unfair. We tax people in poverty too much and we do not tax our state's largest corporations and wealthiest individuals nearly enough. Middle-class people probably are taxed a bit too much as well, particularly those in low-wealth communities.

The Governor has put tax fairness at the center of this year's session, rightfully pointing out that the corporate income tax is essentially broken as it lets the biggest corporations off the hook.

He hasn't pointed out that our 3% state income tax with a low personal exemption and a low earned income tax credit means that people who make six figures pay a smaller percent of their income in state and local taxes than people who make 40 grand or less. That's backwards and this is the month to change it.

The question before each Member of the General Assembly is how to change it.

The Governor's proposal to implement a tax on the gross receipts of the largest businesses in Illinois has largely been rejected as, in the Speaker's words, a “regressive” tax. The House, by the way, deserves credit for taking the Governor's proposal seriously with an eight-hour hearing before the entire House. That high-level policy debate is the crux of transparent governing and we should have more of it. Why can't the Governor appear before a joint session of the General Assembly every month for a British-style Question Time? That would be fun.

One of the most illuminating exchanges was between Representative David Miller and Governor Blagojevich, after the Governor said that any income tax increase – no matter how progressive -- is “off the table” as he would veto it, Representative Miller matter-of-factly reminded the Governor that the General Assembly could simply override the veto. The Governor's response: I'll campaign against any income tax increase next year! Why? Because “it's wrong.”

Here is the worst aspect of the Governor's position: he rejects, vilifies and obfuscates the existence of a progressive income tax. The absolute best way to reverse our regressive taxes is to raise income taxes on high incomes (personal and corporate) and lower taxes on low incomes. This is not difficult to do.

Our state Constitution does require a non-graduated income tax rate, which is why we have a flat rate of 3%. The Governor's position has been that this provision of the Constitution precludes any sort of progressive income tax – but that's just not true.

It would be great if we could have a federal-style income tax where the first $15,000 of income isn't taxed at all, and the next $40,000 of income is taxed at 15%, and the next $60,000 of income is taxed at 28% and then income above $250,000 is taxed at 35%. But, we don't.

What we can do, however, is raise the rate on all income to 5%. That would raise the revenue from the people who have it the most, won't miss it at all, benefit from the Bush tax cuts and (crucially) can write-off the higher state income tax they pay off of their federal returns so that the state as a whole will pay less in federal taxes.

What about people who make less than $50 grand – or people who make less than $15 grand? If we raise the income tax rate to 5%, they will pay more too, and that's the reason why the Governor thinks it is wrong to raise the income tax. There is an easy way, however, to make sure that the middle class and the poor do not pay more in income taxes in order to satisfy the Governor.

That's to raise the personal exemption to $10,000. It's current $2100. Or in other words, cut a $500 check per exemption to every taxpayer instead of what we do now which is cut a $63 check per exemption to every taxpayer (3% of $2100). That exemption is essentially meaningless.

For people with not a lot of money, $500 off of taxes is a lot. And it's probably enough to wipe out any tax they might owe: you have to earn $10,000 per person in order to owe anything (since 5% of $10,000 is $500). So a family of four wouldn't pay any state income tax at all if they earn less than $40,000. And lots of legislative districts have an median family income of less than $40,000. That is about the average family income in our state.

Compared to our current state income tax which hits people as soon as they earn $2100, a $10,000 personal exemption even with a 5% income tax would make most people better off, particularly as they have more exemptions to take (that is, kids).

Here's how it works with one exemption (look for the blue highlight to see the break-even point):

Gross family income Number of exemptions Deduction Value of exemption Adjusted income Rate Tax
$10,000.00 1 $2,000.00 $2,000.00 $8,000.00 0.03 $240.00
$20,000.00 1 $2,000.00 $2,000.00 $18,000.00 0.03 $540.00
$30,000.00 1 $2,000.00 $2,000.00 $28,000.00 0.03 $840.00
$40,000.00 1 $2,000.00 $2,000.00 $38,000.00 0.03 $1,140.00
$50,000.00 1 $2,000.00 $2,000.00 $48,000.00 0.03 $1,440.00
$60,000.00 1 $2,000.00 $2,000.00 $58,000.00 0.03 $1,740.00
$70,000.00 1 $2,000.00 $2,000.00 $68,000.00 0.03 $2,040.00
$80,000.00 1 $2,000.00 $2,000.00 $78,000.00 0.03 $2,340.00

and now here is with a higher income tax rate (5%) and a $10,000 personal exemption.

Gross family income Number of exemptions Deduction Value of exemption Adjusted income Rate Tax
$10,000.00 1 $10,000.00 $10,000.00 $0.00 0.05 $0.00
$20,000.00 1 $10,000.00 $10,000.00 $10,000.00 0.05 $500.00
$30,000.00 1 $10,000.00 $10,000.00 $20,000.00 0.05 $1,000.00
$40,000.00 1 $10,000.00 $10,000.00 $30,000.00 0.05 $1,500.00
$50,000.00 1 $10,000.00 $10,000.00 $40,000.00 0.05 $2,000.00
$60,000.00 1 $10,000.00 $10,000.00 $50,000.00 0.05 $2,500.00
$70,000.00 1 $10,000.00 $10,000.00 $60,000.00 0.05 $3,000.00
$80,000.00 1 $10,000.00 $10,000.00 $70,000.00 0.05 $3,500.00

For people who earn less than $20,000 – that's $10 an hour with a full-time job, and remember our state's minimum wage is only $6.50, and remember, about a fifth of the entire state's population earns less than $20,000 a year – they are better off under a 5% state income tax with a $10,000 exemption than they are under a 3% state income tax with a $2,000 exemption. This is about the break-even point, so anyone who makes more than $20,000 as a single filer would pay more under the change.

Let's skip ahead to people with two exemptions and watch the break-even point rise dramatically. People with two exemptions include married couples and single parents with one kid.

Here is the status quo:

Gross family income Number of exemptions Deduction Value of exemption Adjusted income Rate Tax
$10,000.00 2 $2,000.00 $4,000.00 $6,000.00 0.03 $180.00
$20,000.00 2 $2,000.00 $4,000.00 $16,000.00 0.03 $480.00
$30,000.00 2 $2,000.00 $4,000.00 $26,000.00 0.03 $780.00
$40,000.00 2 $2,000.00 $4,000.00 $36,000.00 0.03 $1,080.00
$50,000.00 2 $2,000.00 $4,000.00 $46,000.00 0.03 $1,380.00
$60,000.00 2 $2,000.00 $4,000.00 $56,000.00 0.03 $1,680.00
$70,000.00 2 $2,000.00 $4,000.00 $66,000.00 0.03 $1,980.00
$80,000.00 2 $2,000.00 $4,000.00 $76,000.00 0.03 $2,280.00

And here is a more progressive income tax at a 5% rate and a $10,000 exemption.

Gross family income Number of exemptions Deduction Value of exemption Adjusted income Rate Tax
$10,000.00 2 $10,000.00 $20,000.00 -$10,000.00 0.05 $0.00
$20,000.00 2 $10,000.00 $20,000.00 $0.00 0.05 $0.00
$30,000.00 2 $10,000.00 $20,000.00 $10,000.00 0.05 $500.00
$40,000.00 2 $10,000.00 $20,000.00 $20,000.00 0.05 $1,000.00
$50,000.00 2 $10,000.00 $20,000.00 $30,000.00 0.05 $1,500.00
$60,000.00 2 $10,000.00 $20,000.00 $40,000.00 0.05 $2,000.00
$70,000.00 2 $10,000.00 $20,000.00 $50,000.00 0.05 $2,500.00
$80,000.00 2 $10,000.00 $20,000.00 $60,000.00 0.05 $3,000.00

Now we're at $40,000 of family income for a family of two (where just under half the population lives). That's a $20/hour job. Not bad and getting tougher to find as our manufacturing jobs are disappearing and service jobs rarely pay that much.

Here everyone with two exemptions who makes less than $40,000 is better off with a higher tax rate (raising taxes!) and a higher personal exemption than they are today. Anyone who makes more than that will pay more.

Let's skip to the comparison for four exemptions (a married couple with two kids or a single parent with three kids):

Gross family income Number of exemptions Deduction Value of exemption Adjusted income Rate Tax
$10,000.00 4 $2,000.00 $8,000.00 $2,000.00 0.03 $60.00
$20,000.00 4 $2,000.00 $8,000.00 $12,000.00 0.03 $360.00
$30,000.00 4 $2,000.00 $8,000.00 $22,000.00 0.03 $660.00
$40,000.00 4 $2,000.00 $8,000.00 $32,000.00 0.03 $960.00
$50,000.00 4 $2,000.00 $8,000.00 $42,000.00 0.03 $1,260.00
$60,000.00 4 $2,000.00 $8,000.00 $52,000.00 0.03 $1,560.00
$70,000.00 4 $2,000.00 $8,000.00 $62,000.00 0.03 $1,860.00
$80,000.00 4 $2,000.00 $8,000.00 $72,000.00 0.03 $2,160.00
$90,000.00 4 $2,000.00 $8,000.00 $82,000.00 0.03 $2,460.00

Now, with a more progressive income tax (even with the Constitutional flat rate)

Gross family income Number of exemptions Deduction Value of exemption Adjusted income Rate Tax
$10,000.00 4 $10,000.00 $40,000.00 -$30,000.00 0.05 $0.00
$20,000.00 4 $10,000.00 $40,000.00 -$20,000.00 0.05 $0.00
$30,000.00 4 $10,000.00 $40,000.00 -$10,000.00 0.05 $0.00
$40,000.00 4 $10,000.00 $40,000.00 $0.00 0.05 $0.00
$50,000.00 4 $10,000.00 $40,000.00 $10,000.00 0.05 $500.00
$60,000.00 4 $10,000.00 $40,000.00 $20,000.00 0.05 $1,000.00
$70,000.00 4 $10,000.00 $40,000.00 $30,000.00 0.05 $1,500.00
$80,000.00 4 $10,000.00 $40,000.00 $40,000.00 0.05 $2,000.00
$90,000.00 4 $10,000.00 $40,000.00 $50,000.00 0.05 $2,500.00

90 grand! That's the break-even point!

Everyone who makes less than $90,000 in family income with four exemptions pays less with a 5% income tax rate and a $10,000 exemption than they do today.

That's a lot of middle-class (and upper-middle-class) families in both D and R districts.

This is just to show that a progressive income tax is very possible and can cut taxes for lots of low-income and working people who are paying too many taxes now because we don't tax high incomes and corporations enough.

That's how it should be.

There are other important ways to make our tax more fair -- increasing the earned income tax credit and either closing corporate tax loopholes or instituting an alternative minimum corporate income tax or even perhaps a gross receipts tax that only affects the highest grossing corporations.

But for those of us who believe in a more progressive tax, we have a challenge that so far we have not really met and that is to explain to each Member of the General Assembly exactly how each of these low-income tax cuts (a higher personal exemption of the earned income tax credit) actually works to deliver tax cuts to the people who need it most.

Tax policy is not intuitive or obvious and unless we do a better job showing Members exactly how taxes are not progressive now and how to make them more progressive, we are unlikely to overcome legislators' natural inclination against raising taxes. And ultimately, our task is to convince voters that they stand to benefit from raising taxes on incomes above their own as it is often too much to ask Members to get ahead of their voters.

This is the crux of the communications challenge: we need to convince lower-income voters (who usually have less education) that raising taxes on high incomes while cutting taxes on lower incomes is good for their bottom line. We need to convince voters that progressive tax policy is the best rural economic development and inner-city economic development the state can possibly offer – because it is.

750, the twin bills in the House and Senate that raise the income tax to 5%, expand the sales tax to include services and invest the revenue in education, human services and pension payments, also holds harmless lower incomes from the higher taxes. This is a great step and right now 750 must be considered the leading proposal before the General Assembly.

One problem, however, is that the low-income tax cuts in 750 (the Family Tax Credit) are neither obvious nor simple to explain. The Family Tax Credit is, as I understand it, a tax credit off of the higher state income tax that compensates for both the expected higher sales tax and the higher income tax that lower-income residents would pay. There is a worksheet that calculates the size of the credit based on income and exemptions which will result in everyone making less than $50,000 or so paying the same amount under 750 than they do today with a 3% income tax and a non-service sales tax.

The concept is sound and deserves to be at the center of the debate, but there are two potential improvements worth considering. One is that the bill essentially asks legislators to trust that the Family Tax Credit will work, as the mechanism is not clearly explained (for every $2,000 of income, how much is the Family Tax Credit worth?). The second is that instead of cutting taxes for those earning less than $30,000 or so, 750 keeps the tax burden the same. 750 makes our tax more progressive by raising taxes on people making more than $50,000 or $60,000 or so, which is good (since our state's long-term economy is suffering from a low-tax and thus low-investment status, particularly in education and transportation), but does not make progress on the other side to cut taxes on low-income people which would do the most good to our economy (as low-income people spend locally almost all the money they save unlike high-income people who invest their money in global vehicles like mutual funds or second homes).

This is the month to build on the Governor's campaign for Tax Fairness in the General Assembly. Let's seize it!

Thursday, May 10, 2007

Lung Association of Chicago spins off to counter centralization

Fascinating news from Crain's Chicago Business here:

Local Lung Assn. chapter breaks with national group

101 year-old group will change name July 1

(Crain’s) — The American Lung Assn. of Metropolitan Chicago is cutting ties with the national group and changing its name.

Effective July 1, the association will call itself the Respiratory Health Assn. of Metropolitan Chicago, said Joel Africk, the group’s CEO.

The Chicago association, founded 101 years ago, is managed by an independent board. Mr. Africk said the New York-based national organization wanted the Chicago association to sign a new contract making it part of a Springfield-based, multi-state satellite of the national organization.

The Chicago chapter refused and is changing its name and dropping its affiliation as a result.
The Lung Association has been a major player in the successes of the smoke-free movement in Chicago and Illinois.

And lots of advocacy organizations have a tendency to centralize over time, cutting off chapter autonomy and fundraising as the (usually D.C.-based) staff in headquarters look to consolidate budgets and authority. This is almost always a bad move, as most advocacy organizations are too top-heavy and D.C.-focused and not nearly focused enough on where most people live, and I'm glad to see the leaders in Chicago actively fighting this trend.

I should say I have no further information besides the Crain's article so it's possible that the story is more complicated in the Lung Association (perhaps there's a state-city split that isn't clear in the article). But local autonomy and funding for local chapters of groups with a common national/federal agenda is almost always a smart move and I'm glad the Chicago leaders of the Lung Association are making that happen.

Wednesday, May 09, 2007

Ending overseas disenfranchisement moves forward in Illinois

Senator Michael Frerichs (D-Gifford) with the unanimous support of the Illinois Senate took a large step forward on ending the practice of disenfranchising overseas voters (many of whom are serving in the Armed Forces) by passing SB 439 yesterday.

The News-Gazette has the online front-page story here. Kate Clements writes:

While there is plenty of time between the statewide primary and general elections, voting rights advocates said there was not enough time between the February and April local election dates to determine the primary winners, certify a general election ballot, print and mail the absentee ballot overseas, and get the marked ballot back by mail in time to be counted.


Frerichs said his bill could put an end to that problem by allowing election authorities to send overseas absentee voters two ballots at the same time.

The first would be a regular absentee ballot for the primary election. The second would be a special ballot allowing voters to rank all of the candidates in each race in order of preference. If the highest-ranked candidate made it out of the primary, that person would be counted as the voter's general election choice. If not, election authorities would count the next-highest ranked candidate to have advanced.

"A ranked ballot system could solve the time constraint issue that is keeping our overseas servicemen and women from getting and returning their ballots on time," Frerichs said. "This is an innovative solution that allows all voices to be heard in the local voting process regardless of their location."

The Veterans of Foreign Wars, thanks to Commander Frank Amaro, testified in favor of this idea in committee (as did yours truly), and the State Board of Elections was extremely helpful in improving the language of the bill.

The City of Springfield, led by Mayor Tim Davlin, placed this issue on the ballot in the April election, and 91% of voters approved the measure. The legislation would allow any municipality to implement a ranked ballot by ordinance and avoid the need to take the question to a referendum for what is essentially an administrative innovation.

Congratulations to freshman Senator Frerichs, a voting rights advocate before his election. Representative Paul Froehlich (R-Schaumburg) (another voting rights advocate before his election) has picked up the bill in the House. Let's hope that the bill meets with the same support in the House that it did in the Senate.