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Illinois Fair Tax Vs. Flat Tax: Flat Income Taxes Are Racist

Written by Ken Gaebler
Published: 10/5/2020

The current Illinois flat tax is racist, in the sense that it systematically transfers wealth from people of color to wealthy Illinois residents, who tend to be white. If you are against racism, you must be for the Illinois Fair Tax. Here's why.

Since 1969, Illinois has had a flat tax system, in which everyone, rich or poor, pays the same income tax rate. This November, Illinois residents will vote on the Illinois Fair Tax, which would allow the state to charge different rates for different income levels, as is the norm in the Federal tax system and the vast majority of states.

Illinois Flat Tax Racism

Is this a racial equity issue?

That's not a question many are asking (ignorance is bliss), but it turns out that there is a significant race issue tied to the Illinois Fair Tax vote.

Before I dig into the details, a quick thought exercise. Ask yourself these questions:

  • If you are relatively wealthy in Illinois, how would you feel if you realized that your wealth came in part from a state policy that systematically put money in your pocket after taking it out of the pockets of Black and Latinx families?
  • If you are lower-income or middle income Illinois resident, how does it feel to know that your state has a government policy in place that picks your pocket and effectively gives that money to wealthier residents in the state?
  • Is a government policy that hurts Black and Latinx residents disproporitionaltely more than white citizens racist? Are people who support such a policy racist?

Keep those answers in your head as we discuss the racial equity issues associated with the Illinois Fair Tax debate.

New Study Suggests Illinois Flat Tax Prejudicial to Black and Latinx Families

A recent study of Illinois Fair Tax issues by the Institute on Taxation and Economic Policy (ITEP), a non-partisan thinktank focused on tax policy, found that Illinois' flat rate income tax system has dramatically increased the racial wealth gap.

After examining the last twenty years (1999-2019) of Illinois tax data, ITEP concluded that Illinois had transferred billions of dollars in tax liability from wealthy residents to lower-income Black and Latinx families.

The study concludes that an estimated $7.5 billion of wealth, in 2020 dollars, accrued to the rich in Illinois, who are predominantly white, with that wealth being funded by Black and Latinx families.

In other words, if Illinois had opted for a more equitable graduated tax system back in 1999, Black and Latinx families could have paid less in taxes and transformed that savings into $7.5 billion in wealth. They were not given that opportunity, so the wealth creation capabilities instead went to the wealthier, mostly white residents.

To put that $7.5 billion in lost wealth opportunity in context, we can compare it to the estimated amount of wealth stolen from Chicago area Black families because of redlining.

Redlining's negative impact on Black wealth has been estimated to be $4 billion.

So, when we talk about the Illinois Flat Tax, we are talking about a government policy that is as prejudicial to people of color as redlining was.

Comparing the negative impact of redlining to the negative impact of Illinois' flat tax system might raise few eyebrows.

Am I really suggesting that the income tax system that Illinois residents have tacitly supported since 1969 is as racist and damaging to people with brown skin as things like redlining, employment discrimination, educational discrimination, and housing segregation?

Why, yes I am.

And do I actually think that history will one day speak of flat tax systems as being in the same category as these other bad boys of systemic racism?

Indeed, I do.

All systems that disproportionately keep people of color down will ultimately have their place in infamy, and the only reason that won't happen is if white supremacists take over the country and write our history -- which could happen. (Please vote in November, non-racists.)

But, assuming the good guys win, yes, flat-income tax systems will ultimately be viewed as racist policies that were part of a larger set of policies designed to keep the poor poor and to keep people with black and brown skin in their place.

How the Wealth Transfer to Rich Whites Happens

There is a lot of nuance to the ITEP study. Here are some of the highlights:

  • From 1999 to 2019, Black and Latinx taxpayers earning less than $250,000 paid $4 billion more than they would have paid, if Illinois had a graduated rate structure similar to the rate structure that would go into effect if the Fair Tax Amendment passes.
  • The Illinois flat tax in effect amounted to giving a pass to the wealthiest 3% of taxpayers, pushing that tax burden to less fortunate Black and Latinx taxpayers, which "reduced the standard of living for these families and exacerbated income and wealth gaps."
  • As a result of this upside-down approach in which Illinois' people of color paid taxes that ought to have been paid by the rich, the wealthy beneficiaries of the flat tax were able to accumulate an estimated $7.5 billion in additional wealth.
  • The issue extends well beyond color lines. ITEP found that Illinois' flat-tax system shifted responsibility for paying $27 billion more in income taxes from the top 3% of earners to families earning less than $250,000. That allowed the top earners to accumulate over $50 billion in additional wealth.

I discussed this study with a right-leaning acquaintance, and they keyed in on the $50 billion number.

They said "You're saying that the Illinois flat tax is bad for people of color in Illinois, but the study suggests it's also really bad for lower-income and middle-income white families. Why are you calling this a race issue?"

It's a great question.

Yes, it's true that the Illinois flat tax system is bad for everyone in Illinois who isn't wealthy. Lower-income and middle-income white families have also transferred billions to Illinois' rich, money they would have held onto if Illinois had had a Fair Tax instead.

Yes, it's true that almost everyone in Illinois, regardless of skin color, will benefit from the Illinois Fair Tax. If the Illinois Fair Tax passes, 97 percent of taxpayers with income tax liability would receive a tax cut and only the wealthiest 3 percent would pay more. The statistics vary county by county, of course, but in every county in Illinois, almost everyone does better with the Illinois Fair Tax, regardless of race.

But when you focus in on the Black and Latinx numbers, and you look at what is happening to Black and Latinx families, you realize that those demographic groups are hit hardest by the Illinois flat tax legacy.

They are more likely than whites to be in the group that is getting their pocket picked. In contrast, while many whites are getting their pockets picked, many whites are also pocket pickers You can't look at white taxpayers as a group and say that the pocket-picking is unequivocally bad for them. Some of them, the white rich, are benefitting.

And, yes, of course, there are wealthy Black and Latinx taxpaters but they are proportionately few and far between.

If you are a person of color, you are not likely to be rich, in Illinois and in every state. If you are not rich, you are hurt by flat tax systems. It follows logically that if you are a person of color, you are hurt by flat-tax systems.

As a result of such logic, you can, without question, say the flat tax system is disproportionately prejudicial and harmful to Black and Latinx taxpayers.

Black and Latinx families are likely to be poor due to systemic racism, going back hundreds of years. The Illinois flat tax system only makes that wealth gap bigger.

The Illinois flat tax doesn't add insult to injury. It adds injury to injury.

The Racial Wealth Gap: Why It's a Big Problem

In the United States, the wealthiest 10 percent of white households hold nearly two-thirds of the country's wealth, and other white households about another fifth, leaving only 13 percent for everyone else.

One white family in particular has wealth equivalent to that of the bottom 40 percent of Americans, a statistic that Politifact confirmed is accurate.

But even when you look beyond the uber-rich, it's a bit unsettling to know that we live in a country in which the median net worth of white families is more than ten times that of Black families and eight times that of Latinx families

For a person born into black or brown skin, this is like being invited to play a game of Monopoly when the other side has 95 percent of the money, already owns all the properties and has three hotels on each property. It's not going to be a fun (or fair) game for the new entrant, is it?

I'm not arguing for redistribution of wealth here, but why would you continue to support rules that stack the deck so unfairly against the people who have had the least advantage and who are starting with next to nothing?

In what world is that morally justifiable?

And what happens in Illinois if you continue to overburden the least fortunate with the highest tax burden, relative to their income and their wealth?

That doesn't work in the long run. It causes a state to implode. And if you look carefully at what is going on in Illinois, you can see that implosion's early signs.

It's More Than Just the Wealth Transfer

This annual pocket picking of the poor by the wealthy that ITEP discussed is bad, bad, bad.

But flat-tax income tax systems penalize people of color in more ways than just that.

If you have twenty minutes of spare time, I strongly recommend you read Advancing Racial Equity With State Tax Policy, which lays out all the ways that state tax systems keep people of color down, with a recommendation that states "...need to reject flat-rate income taxes in favor of a system based more on the ability to pay."

Flat tax systems makes it harder to raise revenue from income tax and push states to raise more money from sales tax and property tax. These are taxes that are hardest on those who earn less. The sales tax paid by someone earning $20,000 a year eats into their discretionary income to a much greater extent than it does for someone who is earning $500,000 a year.

Putting numbers to this concept, ITEP's study notes that "Currently Illinoisans in the bottom 20 percent of income--less than $21,800 in income--pay 14.4 percent of their incomes in combined state and local taxes, while the top 1 percent--$537,400 and higher in income--pay only 7.4 percent."

Considering the Illinois Fair Tax debate from a moral value of money perspective, this disparity in effective tax rates is quite disturbing, but not at all surprising.

It's a direct consequence of Illinois' having a flat tax, and it hurts people of color the most -- and that's on top of the pocket picking I've already discussed.

Where else do you think people of color get hurt by the Illinois flat tax? Would it surprise you that the poorest citizens rely on public healthcare, public education, public human services and other government-funded assistance to a greater extent than the rich?

When a flat tax system can't raise enough public money to fund those programs -- because the rich don't contribute enough -- it is people of color who are hit the most.

So, it is a triple whammy for people of color, all stemming from the Illinois flat tax system that has been in place for fifty years. First, we pick your pocket by having you pay more income tax than you should. Then we make you pay other taxes that hurt you worse than us. Finally, we underfund the things you need to survive and to seek a better life.

In this case, "we" is anyone who blindly accepts the Illinois flat tax system, and thinks that it is fair, when it clearly is the opposite of fair.

Black Lives Matter Doesn't Seem to Get It

I get that we have a flawed criminal justice system, incarcerate people of color excessively (understatement) and that our policing systems are deeply flawed. I of course support the Black Lives Matter protesters who are fighting to fix these deeply flawed defects in our society.

But what saddens me is that they don't seem to sense the importance of the Illinois Fair Tax vote in November.

With their Yes vote on the Illinois Fair Tax, they can dismantle the prejudicial Illinois flat tax and embrace a better approach to taxation, one which advances racial equity and helps to minimize the racial wealth gap.

They have not clued into this. If the vote were to shut down Jim Crow laws or redlining, they would be all over it. But here we have an equally prejudicial form of systemic racism, and there is no outrage in the streets.

Even the media has not appropriately covered this racial dimension to the Illinois Fair Tax debate, relative to its import.

Systems of oppression have a way of getting you to focus on the wrong thing. When everyone is looking at one thing, ask "Why are they trying to distract me and get me to look at that?" and "What do they not want me to be looking at right now?"

I've yet to see BLM protesters with signs supporting the Illinois Fair Tax.

It's concerning.

Twenty more years of the Illinois flat tax will just extend an unfair game and transfers billions more in wealth to Illinois' richest from the pockets of Illinois' people of color, who can ill afford to subsidize the fancy cars and lake houses of the state's more fortunate families.

Nor do I see the wealthy in Illinois acknowledging the unfairness of the current Illinois flat tax. Even as they talk about supporting racial equity, they are complicit in condoning a flat-tax income tax system that exacerbates racial inequity.

In a well-informed world where logic actually applies, anti-racists support the Illinois Fair Tax. And, of course, the contrapositive applies: if you vote against the Illinois Fair Tax, you are racist.

Remember the questions I asked you to consider at the start of the article? Now you know where I stand on them.

You don't have to say racist things to be a racist.

Silence can be a consent to racism, and supporting the Illinois flat tax over the Illinois Fair Tax is a bright pro-racism green light, intended to keep people of color at a disadvantage, in a way that is no less damaging than voter suppression, Jim Crow, redlining, racial profiling and other evils of white-supremacist origin.

Whether the billionaire who is against the Illinois Fair Tax is racist is question I cannot answer for you. His actions work against racial equity and fairness. His side, which clearly just doesn't want to pay taxes, argues that the Illinois Fair Tax is bad for business, when it's very clear that the Illinois Fair Tax is good for business. They tell lies about the Illinois Fair Tax and outmigration.

Do they believe the stuff they are saying, are they just greedy, or do they have something, consciously or subconsciously, against people of color? It's unclear.

But the ITEP study results are clear: Because of the Illinois flat tax, $7.5 billion in wealth went to the mostly-white rich at the expense of Illinois' Black and Latinx residents. Are you OK with that?

The message to takeaway from all of this is also clear. For our state to become more equitable, to achieve the many benefits of the Illinois Fair Tax and to counter the deleterious effects of racism, Illinois voters must approve the Illinois Fair Tax amendment in November.

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