How ‘millionaire’s tax’ ballot question hides a business tax hike

Voters across Illinois will see a seemingly innocuous question at the bottom of their ballots in November: “Should the Illinois Constitution be amended to create an additional 3% tax on income greater than $1,000,000 for the purpose of dedicating funds raised for property tax relief?”

Illinoisans should approach this nonbinding question with extreme caution and skepticism. It is the same smoke and mirrors of the 2020 progressive tax — or “fair tax” — that residents soundly defeated when they realized it would hurt the local businesses they want to support. Policies such as this one harm businesses first.

The proposed tax promises property tax relief by hitting millionaires. But “millionaires” in Illinois more often than not are entrepreneurs, S-corps, partnerships, LLCs, farmers and sole proprietors that make up a large majority of all business establishments in Illinois. Small businesses are responsible for 60% of all the net job creation in Illinois.

To implement a millionaire’s tax, Illinois voters would have to vote to change the Illinois Constitution from its current flat income tax structure to one that allows progressive tax rates. Changing to a progressive income tax in Illinois could mean a massive tax hike for these businesses and create marginal income tax rates in excess of 50% when all state and federal income taxes are included. When Illinois lawmakers proposed progressive income tax rates in 2020, many small businesses would have faced an income tax hike nearly five times larger than that for large businesses.

Research has shown an increase in the top marginal tax rate is associated with a decrease in hiring activity of entrepreneurs and lower wages for their employees.

Illinois already is tied with California for the second-worst unemployment rate in the country. The Chicago metro area, which goes as far as Naperville and Arlington Heights, lost 1,000 jobs between July and August. We need to make it easier to hire and create jobs, not harder.

So, what’s the solution to Illinois’ very real property tax crisis? It’s not flashy, and it certainly won’t fit on a bumper sticker. It’s the solution that comes up again and again: fiscal responsibility starting with meaningful pension reform.

Illinois’ state and local unfunded pension liabilities have ballooned to more than $210 billion, despite continuous increases in taxes and pension funding. This, in turn, has crowded state and local budgets, made less money available for services and forced local governments to continually raise property taxes just to keep their heads above water.

No amount of millionaire taxes or progressive rate schemes will solve this fundamental problem. The only way forward is a constitutional amendment that allows for changes in not-yet-earned pension benefits; this could allow relief by extending the retirement age and limiting annual increases to inflation rather than a fixed percentage.

Make no mistake: while nonbinding, votes on this question matter. Advisory questions serve as political cover, allowing lawmakers to claim a mandate for future tax hikes. A “yes” vote on this advisory question will be spun as an endorsement for yet another attempt to overhaul Illinois’ tax structure.

Let’s learn from our past and protect the business community from recycled bad ideas dressed up in new packaging. Illinois has a chance to reject the “millionaire tax” misnomer, once and for all.

• Matt Paprocki is the president and CEO of Illinois Policy and the treasurer of Vote No on Illinois Tax Hikes.