In November, Illinoisans are scheduled to vote on the Illinois Fair Tax -- a constitutional amendment that would abandon the state's antiquated flat income tax structure in favor of a graduated or progressive tax system.
Proponents of the amendment cite the need for a more equitable tax policy for the state's middle- and working-class families, while opponents speciously argue the Fair Tax is a money grab that threatens businesses, entrepreneurs and (confusingly) retirees.
Other objections to the Fair Tax proposal range from the political to the conspiratorial.
But the amendment's opponents tend to ignore the ethical dimensions of the debate. As I mentioned in my GranolaSoul.com article on the spiritual and moral argument for progressive tax systems, money has moral value. And when we recognize its moral value, the case for the Fair Tax comes into even sharper focus.
Why does Illinois need a fair tax system?
Illinois currently has an across-the-board tax rate of 4.95%. Under the Fair Tax system, high wage-earners ($250K-$1M+ annual income) would pay a progressively higher tax rate capped at 7.99%, while those earning less than $250K (the vast majority of state residents) would see their tax rates remain unchanged or even decrease.
On the surface, a flat tax policy seems fair -- everyone pays the same rate. But in reality, a flat tax policy places a greater burden on middle- and working-class families because it forces them to spend a disproportionate share of their disposable income on taxes.
Consider this: In a state with a flat tax rate of 5%, a resident with income of $500K pays $25K in taxes, leaving $475K in disposable income. Meanwhile, a taxpayer earning $25K pays $1,250, which leaves just $23,750 a year for food, housing, healthcare, transportation and other necessities.
Some might say the above example is a textbook case of capitalism at work. But most rational people would agree that charging both of these taxpayers the same tax rate seems ethically questionable, at best.
The decreasing moral value of money
This isn't the first time Illinoisans have been asked to choose between a flat tax and a fair tax. Over a century ago, Illinois residents and other Americans determined it's morally irresponsible to charge high-income and lower-income taxpayers the same rate.
In 1894, Congress enacted legislation to create the nation's first peacetime income tax, a move that kicked off a national debate over the nature of tax policy. In the end, Congress adopted a graduated or fair federal income structure over the objections of flat tax advocates.
During the 1894 national debate, some of the most outspoken proponents of fair tax policy came from the religious sphere. In addition to citing biblical and theological arguments, fair tax supporters built their case on a concept University of Houston professor, Joshua Cutler, calls "the decreasing moral value of money."
Money has moral value, fair tax proponents argued, and its moral value is defined by its use. Money earned by individuals at the lower end of the income spectrum has more intrinsic value because it funds the necessities of life. As income rises, the moral value of money decreases because it's no longer used to purchase necessities -- it's used to buy luxuries and build bank accounts.
The decreasing moral value of money concept sits at the heart of the Illinois Fair Tax debate, especially given the growing threat income inequality poses to middle- and working-class families. If we continue to ignore the disparity of Illinois' constitutionally mandated flat tax system, we risk achieving fiscal stability by placing an even greater burden on taxpayers who can least afford it.
But if we recognize the moral value of money and incorporate that understanding into our tax policies, Illinois can take an important step toward closing its fiscal gap -- and an even bigger step toward creating a more equitable society.
Interested in the Illinois Fair Tax debate? If so, you will enjoy these articles:
Illinois Flat Tax Is a Tax on Success
Unfair Taxes Contribute to Racism
Illinois Fair Tax FAQ
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