Fact-check: Rauner overstates facts about states with graduated income tax
Arecurring theme of Republican Gov. Bruce Rauner’s re-election campaign is to paint Democratic challenger J.B. Pritzker as a big taxer. To that end, Rauner has seized on Pritzker’s advocacy for replacing Illinois’ current flat-rate income tax with a graduated system used by most states and the federal government that imposes higher rates on those with higher income.
During a recent radio interview with the Bloomington-Normal based WJBC-AM, Rauner claimed Pritzker was being cagey because middle class voters were bound to get hammered by any switch.
“The truth is, every state that has put in a graduated income tax, the middle class always pays more,” Rauner said, echoing what’s become a frequent talking point. “That’s what Pritzker doesn’t want known, that’s the truth and we’ve got to get the truth out.”
Last fall, we rated Mostly False a claim from Rauner that the graduated system Pritzker supports would necessarily result in a tax hike on Illinois’ middle class. Because Pritzker has so far refused to propose rates, no one can say for sure whether the plan he might ultimately unveil would be worse or better for middle-income taxpayers.
But Rauner’s recent claim paints the issue with an even broader brush, flatly declaring it “the truth” that all 32 states that tax income at graduated rates penalize the middle class. That’s a tall order, so we decided to see if we could find “the truth” about Rauner’s “truth.”
Rauner wrong on rates
In Illinois, the rich as well as the not-sorich all pay the same 4.95 percent tax rate on their income. We asked Rauner spokesman Justin Giorgio to explain how middle-class taxpayers are worse off in all states with graduated taxes, and he sent us a list of 26 states in which a single filer making $59,000 would be taxed at a higher rate than the one currently in effect in Illinois.
There are glaring problems with that response. Giorgio’s list omits six states with graduated taxes where such a taxpayer would pay less even though Rauner was adamant that his claim applied to all such states.
Then there’s the question of that $59,000 benchmark, which is what the U.S. Census pegged as the median household income in the nation for 2016. In 2016, the Census measured the median income for the category of people that most closely approximates single filers at slightly more than $35,700.
Under that scenario, the number of states that would tax the income of that hypothetical single filer at lower rates than in Illinois grows from six to 11.
In North Dakota, for instance, the filer’s income would be taxed at just over 1 percent.
Overall tax burdens
Comparing tax policies between the states is fraught with complications because no two do it alike.
At a different campaign event on the same day as his radio appearance, Rauner pointed to four graduated tax states with what he described as “stunningly high” rates: Minnesota, New Jersey, New York and Connecticut.
What he failed to mention, however, is that several of those states also offer a generous menu of exemptions and deductions that significantly mitigate costs for middle- and lowincome taxpayers.
Individual taxpayers in Connecticut earning over
$10,000, for instance, are faced with nominal tax rates higher than Illinois’ flat one. But a single filer in Connecticut also receives a personal exemption worth seven times more than that offered in Illinois.
And in New York, rates higher than Illinois’ set in on every dollar earned by an individual above $11,700. But the standard deduction is worth four times the $2,175 personal exemption in Illinois, which does not have a standard deduction.
It’s important to note that a multi-rate structure doesn’t necessarily guarantee a state’s income tax will be exceptionally progressive. Missouri, for example, has a 10-tiered rate structure, but the highest rate kicks in after just $9,072 in income. That said, Missouri taxpayers also benefit from a standard deduction even more generous than that in New York.
Graduated rates, by their very nature, are designed so lower-income earners pay less on a greater share of their income.
“It doesn’t take a tax policy analyst to say that you could create an income tax with rates both below and above [4.95 percent] at different levels of income and that the majority of middle-income taxpayers would pay less as a result of that,” said Richard Auxier, a research associate with the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution.
“To argue that going to a progressive income tax is bad for low- and middle-income families is kind of missing the point of why you would have a progressive rate structure in the first place,” he added.
Our ruling
Rauner said that in “every state that has put in a graduated income tax, the middle class always pays more.”
Rauner’s claim that graduated systems inevitably lead to higher taxes on the middle class is not even close to accurate. We rate it False.