If U.S. House Speaker Nancy Pelosi (D-Calif.) were to grant Congresswoman Alexandria Ocasio-Cortez (D-N.Y.) a floor vote on her proposal for a new top marginal income tax rate of 70%, as Senate Majority Leader Mitch McConnell is doing for her Green New Deal, it would be defeated in the GOP-run Senate even if Rep. Ocasio-Cortez could get it through the House.
For these reasons, the more immediate opportunity for Democrats to enact progressive tax hikes on incomes beyond a certain threshold is in blue states, and Illinois Governor J.B. Pritzker (D) is moving to do just that in the Land of Lincoln.
“I am advocating a graduated income tax so that it does not hit the middle class or people who are striving to get there but rather leans on people who are most able to pay," Governor Pritzker told the Chicago Sun-Times last week. "And that’s why it’s not in our budget today but I will be asking the Legislature to pass a graduated income tax, and as you know, that could not go into effect until the November 2020 elections.”
Governor Pritzker’s proposed income tax hike comes less than two years after the state’s flat income tax was raised from 3.75% to its current rate of 4.95%. Illinois House Speaker Mike Madigan (D), who first took the top spot in the Illinois House during President Ronald Reagan’s first term in the White House and is arguably the most powerful man in Springfield, was able to enact that 32% income tax hike by overriding then-Governor Bruce Rauner’s (R) veto in 2017.
As is the case for Democrats in California, Madigan and his Democratic caucus in the Illinois statehouse now have a supermajority that prevents legislative Republicans from stopping their efforts to raise state taxes further.
In addition to a graduated income tax hike, Governor Pritzker is seeking to generate additional revenue for state coffers by raising taxes on vaping devices and electronic cigarettes, as well as legalizing marijuana. Illinois is not the only blue state where Democratic lawmakers are working to move from a flat to a progressive income tax structure.
Massachusetts Progressives Hope The Sixth Time Is The Charm For A Graduated Income Tax Hike
Voters in Massachusetts have rejected five previous ballot measures to impose a progressive tax hike on upper income households. That isn’t stopping proponents of a graduated income tax from making another go of it in 2019.
The Horse Race, a podcast that covers Massachusetts politics and legislative activity on Beacon Hill, interviewed Senator Jason Lewis (D-Middlesex) last week to discuss his new proposal to impose a progressive income tax hike in Massachusetts. Senator Lewis’s proposal would institute a 4% surtax on income above $1 million annually, on top of the existing 5.05% flat tax assessed on all income.
The Fair Share Amendment, a ballot measure to impose the same 4% surtax that Senator Lewis is now calling for, was taken off the ballot last year by the Massachusetts Supreme Judicial Court. The Bay State’s high court ruled that the Fair Share Amendment violated anti-logrolling provisions in the state-constitution, the world’s oldest constitution still in operation.
Senator Lewis’s proposal, while seeking the same policy as the Fair Share Amendment, has been filed as a legislative amendment to the state constitution, as opposed to a citizens amendment, which is how the Fair Share Amendment was filed. Since legislative amendments aren't subject to the same limitations as citizens amendments, Senator Lewis thinks his proposal will pass constitutional muster where the Fair Share Amendment could not.
In order to become law, the 4% surtax proposed by Senator Lewis and Representative Jim O’Day (D-Worcester), the House cosponsor, will need to receive majority approval in two successive legislative sessions, after which the measure would be placed on the ballot for voters to ultimately decide upon. Senator Lewis, who is aiming to get his tax increase on the 2022 ballot, acknowledged in his Horse Race interview that the process is long but explained that he thinks that is a good thing, since he believes it should not be easy to change the state constitution.
Senator Lewis’s proposal for a 4% surtax on incomes above $1 million amounts to a nearly 80% increase in the existing 5.05% state tax rate on small business and household income beyond $1 million. Senator Lewis referred to his proposal for a near 80% rate hike as “a slightly higher income tax rate.” Lewis says his income tax hike would raise approximately $2 billion per year for commonwealth coffers.
In rhetoric that sounds similar to that espoused by Congresswoman Ocasio-Cortez and her Democratic colleagues in Washington, Senator Lewis paints his progressive income tax hike as a way to make “the wealthiest households in Massachusetts to pay a little bit more.”
As is the case with the federal income tax hike proposed by congressional Democrats, as well as the state income tax hike proposed by Illinois Governor Pritzker, Senators Lewis’s proposal would also hit thousands of small businesses who file under the individual income tax system.
According to IRS data, more than 529,000 Massachusetts sole proprietors, along with 184,000 S-Corps shareholders and partners filed under the individual income tax system in 2016, the most recent year for which data is available, and more than 15,000 of those small business owners would be hit by the progressive income tax hike proposed by Senator Lewis as a way to soak the rich.
Likewise in Illinois, 955,000 sole proprietors file under the individual income tax system, as do 390,000 partners and S-Corp shareholders. The exact number of which that will be hit by Governor Pritzker’s progressive income tax hike will depend on the income thresholds set by Speaker Madigan and his colleagues.
This is how progressive income tax hikes sold as a means to soak the rich end up diminishing the job creating capacity of small businesses, leaving them with less revenue with which to hire new workers or give existing employees raises. Though Democrats are currently unable to enact a progressive tax hike at the federal level, they may make headway in the states in 2019.
