Friday, March 13, 2009

Media headlines are wrong: Quinn proposes tax cuts for most, tax increase for some

That's what the headlines should be about Governor Quinn's likely budget proposal.

The Governor has confirmed that he wants to cut the income tax for everyone by making the first $6,000 of income tax free. Right now the first $2200 of income is tax free. So the benefit is basically $120 from the 3% tax rate. And with a 4.5% tax rate, the benefit of not taxing an extra $4000 is $180. 

In other words, the Governor proposed an income tax cut of $180 for everyone.

He also wants to raise the income tax rate from 3% to 4.5%. Illinois has the lowest income tax rate of any state in the Union that has an income tax. We're lower than Indiana (at 3.4%). We are lower than every other state that has an income tax. So that is an income tax increase. 

To be clear, he proposed an income tax cut of $180 and then a higher rate of 4.5% instead of 3%. 

That is not a 50% increase.

Most people get a tax cut. (If you make $6,000 a year, you will pay less than you do today. That's a tax cut). A few people get a wash (the $180 tax cut from the personal exemption about equals the higher rate). And some people will pay more because the higher income tax rate will be bigger than the $180 tax cut from the personal exemption. 

So media headline writers! Don't screw this up! Quinn did NOT propose a 50% income tax increase! He proposed a tax cut and a tax increase. Most people will pay less (that's my initial cut of the math -- I may be wrong). Some people will pay more. But most people will NOT face a 50% income tax increase. 

And, since state income taxes are deductible on federal income tax returns, this is a really smart move, because it means that the actual dollars paid in taxes by our wealthiest Illinoisians (a group I hope to join), will not be 50% higher than they were before Quinn's proposal. For every dollar a millionaire pays in state income taxes, she cuts 35 cents off her federal tax bill. So the actual bottom-line increase for even the wealthiest people in Illinois is 65 cents on the dollar for every dollar increase in the state income tax (making the 50% increase even more incorrect).


2 comments:

Reed said...

Is that 6,000 or 60,000?

Dan Johnson-Weinberger said...

Both.

I'm trying to make it absolutely clear: if you make $6,000, you'll pay less than you do today, because today you pay taxes on about $4,000 of your income, while under Quinn's proposal, you'll pay nothing.

There are people who make $6,000 a year. They are part-time workers (maybe single moms), who might make minimum wage.

Why should they pay any income tax? That's a dumb economic move to perpetuate poverty.

I'm not sure where the cutoff is (some reports say about $54,000, depending on how many kids you have or if you're married) between paying more and paying less.

But the point that lots of people will pay less is the main point of the post.

Thanks Reed!

DJW