One of the most surprising results of the 2020 election was the defeat, in Illinois, of a state constitutional amendment to permit a progressive income tax. The Graduated Income Tax Amendment would have eliminated the Illinois constitutional requirement that tax rates remain flat across incomes. Its defeat is likely the most important political event for the state since I moved here 18 years ago. The proposed change in the state constitution was an effort by the dominant Democratic Party to continue its model of high taxes and high spending to support the base of its political muscle—public-sector unions. The party retains control of the legislature and the governor’s office, but it is politically cornered. Legislatively, it faces a choice between a reform agenda that would undermine its political base or a substantial tax increase on every working citizen.
The amendment went down to defeat for two overriding reasons—one analytical, the other more emotional. The first was that the proposed tax increase was not connected to any steps that would address the structural problems in Illinois finances. Illinois has the nation’s worst bond rating, largely because of its enormous unfunded pension liabilities. But Governor J. B. Pritzker, after taking office in 2019, has proposed no serious pension reforms. Nor has he pursued a deregulatory agenda that would lead to higher economic growth rates that might service these liabilities. And worse still, in connection with the referendum, he did not agree to use a substantial portion of the additional revenue flowing from the progressive tax rates to pay down these liabilities. Instead, much of the new revenue would have been spent on new programs or expanding old ones. His promise to use a mere $100 million of the new lucre to pay down pension liabilities was an insult to Illinois taxpayers who would see another $4 billion extracted from their pocketbooks.
The other reason for the amendments’ failure had to do with more stories of corruption coming out of Springfield. When state representatives are being indicted for extortion, citizens instinctively recoil at handing them more money. Even more problematic for the amendment’s prospects, it became clear that Michael Madigan—speaker of the house, chairman of the state Democratic Party, and undisputed power broker for the last three decades—was under investigation for getting ComEd, the state’s major utility, to hire some of his supporters in return for favors.
That investigation underscores the real scandal in Illinois: not merely the illegal trading in favors but the more damaging legal trading. Public-sector unions support the Democratic Party in return for the party giving them sweetheart deals with the state. Unfunded pension liabilities are the consequence because many politicians hope to retire or move on to the federal level before the full bill comes due.
The cost to Illinois is more than money. Public services have been degraded because unions insist on work rules that protect their most incompetent and ill-motivated members. Nothing illustrates this problem better than the current debate about excessive force by police. My colleague, Max Schanzenbach, has shown that union work rules protect bad apples in the Chicago police force. The governor and legislature, with its Democratic supermajorities, could vote tomorrow to make police discipline no longer a subject of union bargaining. Yet despite their rhetorical support for Black Lives Matter, they have enacted no such legislation. The reason: their political machine is dependent on support from public-sector unions. Throwing the police unions under the bus will raise questions about why they do not improve poor public education in urban districts by doing the same to the teachers’ union.
Governor Pritzker groused at the tax amendment’s defeat, blaming it on the “billionaires and millionaires” who opposed it. Himself a billionaire, Pritzker contributed more than anyone to the referendum campaign. He makes a poor contrast with Ken Griffin, who bankrolled much of the opposition. Unlike Pritzker, Griffin is a self-made businessman, creating substantial jobs in the private sector; Pritzker inherited his money and was not even trusted to run the major businesses of his own family. The governor has also become a byword for tax avoidance. He is apparently under investigation for trying to avoid taxes on a mansion he owned by making its bathrooms inoperable. His substantial offshore trusts have not paid Illinois taxes. Pritzker’s involvement in the referendum sent the message that Illinois will raise taxes on productive citizens who earn their money and create jobs, while leaving the wealth of tax avoiders like himself largely untouched.
The defeat of the Graduated Income Tax Amendment will force a rewriting of the Democratic playbook for governing Illinois. Looking for more revenue, Democrats could now simply try to raise taxes—but those taxes must be levied at the same rate on all earners. The amendment’s resounding defeat suggests that pursuing this option would be an invitation to disaster for Democrats at the next election.
Democrats could try to cut the state’s operating budget, in the hopes that the resulting pain would motivate Illinois voters to embrace the progressive tax amendment in the future. But the amendment lost badly, and the personal circumstances of Madigan and Pritzker make them unlikely champions for a successful retry.
The best way out of the state’s corner is to pass real pension reform and a program for economic growth to make the measures less biting. If a constitutional amendment is necessary to get around existing provisions in the state constitution, so be it. Such an amendment could even be coupled with a change in the flat-tax requirement if that would nevertheless limit the extent of differential tax rates. A combination of amendments might make the overall package more palatable. To be sure, this option would cost Democrats some union support. But their predicament is that the union support they currently enjoy is so costly to the rest of the state that it threatens their continued political dominance. Even in Illinois, good politics can become good governance once all the bad-governance options have been exhausted.
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