CHICAGO — Before Illinois voters consider any candidate on the Nov. 3 ballot — the presidential contenders, a member of Congress, a state lawmaker or a local judge — they will be asked to cast a simple yes or no vote on what could become the biggest change in state taxation in decades.
The question at the top of the ballot is whether the Illinois Constitution should be amended to replace a mandated flat-rate income tax with a graduated-rate tax structure that increases the levy as income rises.
More than any candidate being voted on, the proposed graduated-rate tax amendment represents what could be one of the most fundamental and long-lasting changes in how state government in Illinois functions.
Supporters contend a graduated-rate system is a fair way to shift the tax burden and generate more money to help end Illinois' long-term financial structural imbalance. Opponents contend it's a job-killing move that offers no guarantees that higher tax brackets for the wealthy won't creep down to the middle class.
"It's the ultimate policy wonk question" for voters not often asked to take sides on such weighty policy questions, unlike places like California where ballot initiatives flourish, said University of Illinois at Chicago political scientist Christopher Mooney.
The potential ramifications of the tax change are wrapped in the emotion of millions of dollars of pro and con arguments projecting hope or playing on fear, Mooney said.
"People in Illinois are not used to dealing with this," Mooney said. "We're not used to having to think fairly deeply about significant policy issues. We just don't do it here."
The debate goes beyond partisan polarization to a larger issue of trust in government in a state with a long history of political scandal, in addition to traditional public wariness of taxes. Those issues are exacerbated by a climate of institutional and economic uncertainty due to a pandemic that has disrupted lives, jobs and paychecks.
Fueling the debate on each side are major infusions of cash from billionaires, organized labor and business groups.
The proposed amendment is the signature agenda item of Democratic Gov. J.B. Pritzker, worth an estimated $3.4 billion, according to Forbes, and is also backed by a funding arm of the billionaire founder of eBay. Opposing the amendment is Citadel hedge-fund founder Ken Griffin, who's worth $15 billion, according to Forbes. Pritzker and Griffin are spending tens of millions of dollars to promote their point of view.
Moving to a graduated-rate income tax could mean as much as $1.2 billion in new revenue this budget year for a spending plan that has seen its income decimated by the economic effects of COVID-19.
Pritzker has estimated a revenue loss of $6.5 billion this budget year and next and has helped to keep the spending plan solvent with $5 billion in federal borrowing. But there is uncertainty over how to pay it back as Washington remains stalemated over giving money to state and local governments.
The income tax is the largest generator of money for state government, accounting for about half of its annual operating budget. On an annual basis, Pritzker predicted the new tax structure would generate about $3.4 billion prior to the pandemic's effects on the economy.
To become part of the state constitution, the voting requirement is hefty. The proposal needs either 60% support among those voting directly on the ballot initiative or more than 50% of those voting in the election.
Of 22 proposed amendments submitted to voters since the 1970 state constitution was adopted, 14 were approved and eight were rejected. The last amendment ratified by voters was in 2016, when the so-called transportation lockbox was added to the constitution in an attempt to keep transportation construction dollars from being used to fund unrelated parts of government. It won support of 67.5% of those who voted.
Individual incomes in Illinois are now taxed at 4.95% regardless of the amount earned. The state income tax was instituted in 1969 at a rate of 2.5%, which held through 1982. The rate has fluctuated over the years, reaching a high of 5% from 2011 to 2014, falling to 3.75% between 2015 to June 30, 2017, and then coming up to the current rate.
Under a law adopted by the Democratic-led General Assembly last year, new rates would take effect on Jan. 1 if the amendment is ratified by voters.
Individual and joint filers would pay 4.75% on their first $10,000 in income, 4.9% on income over $10,000 to $100,000 and the current 4.95% rate on income from $100,001 to $250,000.
At that point, the income ranges and tax diverge for individuals and people filing jointly. Individuals would pay 7.75% on income between $250,001 to $350,000 and 7.85% on income from $350,001 to $750,000. Joint filers would pay 7.75% on income between $250,001 and $500,000 and 7.85% on income between $500,001 to $1 million.
Individuals making more than $750,001 or married couples earning more than $1 million would see their entire income taxed at 7.99%.
The corporate tax rate, currently at 7%, would rise to 7.99%. Corporations also pay a personal property replacement tax of 2.5%, which is basically added onto their income tax liability.
Pritzker's office and amendment supporters have estimated that 97% of the state's 6.2 million tax filers would pay the same amount or less than they pay now under a graduated-rate system. Most of the increase in revenue would be paid by the 0.3% of taxpayers who bring in more than $1 million in net income.
Among the 41 states that levy an income tax, Illinois is one of nine with a flat tax, according to the Federation of Tax Administrators. Federal income taxes in Illinois and the rest of the country are paid through a graduated-rate system.
The amendment is backed by two groups with similar-sounding names: Vote Yes for Fairness and Vote Yes for Fair Tax.
Pritzker has given $56.5 million to Vote Yes for Fairness, which is the main on-air advertiser on behalf of the amendment. It is run by Quentin Fulks, a deputy manager for Pritzker's successful 2018 run for governor.
Vote Yes for Fair Tax, with a focus on organization, is led by John Bouman, who formerly headed the Sargent Shriver National Poverty Law Center, which also has backed the proposed amendment.
The group is heavily backed by labor, with $250,000 in funding from the American Federation of Teachers and $100,000 from the National Education Association. It also received $500,000 from the Omidyar Network, which calls itself a "philanthropic investment firm" and foundation started by Pierre Omidyar, the billionaire founder of eBay, and his wife, Pamela.
Opposing the amendment are groups including the Coalition to Stop the Proposed Tax Hike Amendment, which received $20 million from Griffin.
The organization has also received $100,000 apiece from Jay Bergman, president of Hinsdale-based Petco Petroleum Corp; Craig Duchossois, who runs the diversified Duchossois Group; MacNeil Automotive Products of Bolingbrook, which produces WeatherTech products; Richard Uihlein, a nationally conservative megadonor from Lake Forest who owns the Uline office supply company; and Muneer Satter, who started and manages his own investment firm.
Another opposition group, Say No to More Taxes, was formed last month, funded by $300,000 from the Illinois Opportunity Project, a conservative tax-exempt organization that does not have to disclose its donors. It has connections with Illinois Policy Action, one of several other conservative opposition groups that do not have to disclose their funding along with the Illinois Business Alliance and Illinois Rising Action.
The messaging by the pro and con groups has stepped up closer to the election, particularly through TV ads, mailings and phone calls. Vote Yes for Fairness has spent $5.5 million on TV since Aug. 20, while the stop coalition has spent $5.1 million since Aug. 28, according to an industry source.
The messages from both sides don't always tell the whole truth.
A Better Government Association study found that supporters overstated things when they said Illinois was an outlier because in almost every state with an income tax, wealthy people pay a higher tax rate than the middle class. In fact, nearly half of states with an income tax don't charge higher rates on the wealthy, including some with a graduated rate system.
More recently, the coalition against the amendment has been airing ads leaving out some critical context. In one, Phyllis Barklow, identified as a retired community volunteer from Park Ridge, warns that the proposal would give politicians new "powers to increase income taxes on anyone, including retirees."
But Illinois is one of three states that does not tax retirement income, and the amendment's adoption would not change that. Even the AARP's Illinois arm, a supporter of the amendment, said the proposal would not affect the state's ban on taxing retirement income, including Social Security, pensions, 401(k)s, and IRAs.
The opposition group also has been warning that the amendment does not include voter approval of new tax rates, leaving it up to politicians to decide them. But that is already the case in Illinois, where tax rates have never been part of the constitution.
One critical difference with a flat tax, though, is that any increase approved by politicians would affect all Illinois taxpayers, regardless of income, making a tax hike more difficult politically. Under a graduated-rate tax system, lawmakers could change rates on specific income categories — potentially making them less subject to any political backlash by targeting less politically influential groups.
Still, the opposition's attacks have forced Yes for Fairness into a defensive posture in recent weeks. Rather than singularly promoting an altruistic message like the one that asked if it was fair for first responders to pay the same tax rate as millionaires and billionaires, the group is now engaged in its own form of truth squadding the anti-amendment forces.
Each side has come out with its own studies to buttress its arguments.
The Illinois Chamber of Commerce released a study from a consulting firm that warned approval of the amendment would cost jobs, send higher incomes out of state and hurt women and minorities because it would reduce employment in industries like restaurants and health care. The pro-amendment group cited studies that showed the opposite.
And this week, Yes for Fairness promoted a study from the Institute on Taxation and Economic Policy, a left-leaning think tank, that said it found the long term effects of the flat tax over the past two decades deepened economic disparity, significantly impacting minority populations.
Ultimately, though, the amendment's fate will likely be tied to voters' views of Illinois, its politics and their own economic situation.
Mooney, the political scientist, said Pritzker's support for the proposal is a "powerful argument when you've got a billionaire out saying 'it's not fair' that he's paying the same tax rate as a lower-income person."
But he said opponents may be finding it easier to "manipulate people's points of view."
"It's taxes and nobody likes taxes. You can throw up smoke and raise fear and fear is a powerful emotion and it's far more powerful than that of altruism or hope on the other side in trying to make a sort of high-minded fairness argument. It's not as gut level," Mooney said. "It's hard to evoke emotions that counter fear."