The economic fallout from the COVID-19 pandemic has resulted in some calling for a boost in income taxes to help government fill up their coffers.
The Boston Herald reported that 91 economists told Massachusetts Gov. Charlie Baker and leaders of the state Legislatures they should raise personal income and corporate taxes due to tax revenue decreases during the pandemic.
“In a recession, balancing the budget by cutting spending has a more negative impact on economic growth than balancing the budget by raising taxes,” the economics claimed in a May 26 letter. “Both the personal income tax and the corporate tax are fair ways to do this, since they fall only on persons with incomes and businesses with profits.”
The economists suggest a 1 percentage point increase in the income tax and corporate taxes. They say that plan would raise $2.68 billion in new tax revenues during a time in which the state expects to see a $4.4 billion decrease in taxes due to the pandemic.
Baker has been resistant to any ideas of raising taxes during the economic downturn.
Even The Herald seemed dubious of the plan, writing that the experts “claim it’s the only ‘fair’ way to balance next year’s budget and avoid spending cuts – even as homeowners and businesses try to dig out of an economic hole.”
Paul Craney, spokesman for MassFiscal Alliance, told the Herald that the economists, many of whom are professors at the University of Massachusetts, don’t understand the plight of those with low-income – or no – jobs.
“The UMass professors who teach economics are the ones advocating for their own salaries,” Craney noted. “They should try living in the shoes of the 1 million who filed for unemployment in Massachusetts.”
In Illinois, Gov. J.B. Pritzker soldiered on with his progressive income tax proposal despite the pandemic, hoping it will generate $3.5 billion in tax revenue. Both chambers of the Illinois Legislature passed the Joint Resolution Constitutional Amendment No. 1, which will let voters decide in November whether to replace the state’s flat income tax with a graduated income tax.
The Illinois Policy Institute criticized the idea because the state had just passed a record-high budget, making no attempt at belt tightening before the pandemic hit. The group notes that even former Democratic President Barack Obama said politicians shouldn’t hike taxes during a recession.
“The governor’s progressive income tax proposal would directly hit more than 100,000 small businesses in the state just after they’ve been ravaged by the economic shutdown ordered to contain the COVID-19 pandemic,” Adam Schuster, budget and tax research director at the Illinois Policy Institute, told the DuPage Policy Journal. “Small businesses are Illinois’ primary job creators, and they need protection and stability as the state and nation recovers from this health crisis.”
Ideas Illinois conducted a survey of Illinois voters, finding that nearly half of them fear the tax could causes businesses to move to more tax-friendly states if it’s implemented.
Proponents of a graduated income tax in Colorado are now collecting signatures, hoping to get a referendum on the November ballot. What the proponents are calling a “fair tax” would boost levies on incomes of more than $250,000. As in Illinois, opponents express concern that the measure could spur businesses to move out of state.
The Tax Foundation warns states not to count on those volatile income taxes, noting that income taxes fluctuate more than consumption taxes during an economic downturn.
“Income taxes tend to be more harmful to economic growth than consumption taxes and property taxes,” Janelle Cammenga wrote for the Tax Foundation. “Income taxes fall on labor and savings, while consumption taxes, like the sales tax, fall on what people spend instead of what they earn.”
– The Center Square
