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June 17, 2015

Apparently, there's a new battleground for Illinois politicos: the middle class.

For whatever reason — I'm guessing polling data, but maybe that's cynical — the state's Democrats and Republicans both claim they're pursuing an agenda to build a prospering middle class. This is a welcome development. After all, middle-class families, as well as low-income workers who aspire to become middle class, have seen their real incomes decline over the last 30 years, making it difficult to maintain their standard of living, much less improve it. 

So what would it take for decision makers to make good on their desire to support the middle class? At the state level, the answer is clear: invest adequately in core public goods and services. For instance, enhancing infrastructure and providing every child a high-quality public education effectively creates jobs for middle-income workers while helping their kids become college and career ready.

Meanwhile, funding services for vulnerable members of society, such as the elderly or individuals with mental health and developmental disability concerns, enables middle-class folks to access needed support that's otherwise too costly for their budgets.

The catch is that making adequate investments in core services is only possible when the state has sufficient revenue to do so. If the recent bipartisan concern for the middle class is sincere, the first order of business is increasing state taxes enough to at least replace the $4.7 billion in annual, recurring revenue the general fund lost when personal and corporate income tax rates were cut Jan. 1.

Wait a minute, you might say, didn't those tax cuts help the middle class? Well, no. In fact, quite the opposite. Here's why. 

First and foremost, neither middle-class families nor the small businesses they own benefited materially from those cuts. Indeed, when Illinois' personal income tax rate dropped from 5 percent to 3.75 percent, it created a tax cut (and concomitant revenue loss) of some $3.7 billion. However, the bottom 60 percent of Illinois taxpayers — in other words, the middle class and below — received just $479 million, or 13 percent, of that huge tax break.

Meanwhile, well over $2 billion, or more than 54 percent, of that tax break went to the wealthiest 11 percent, who, to be clear, are better off than middle class. Millionaires fared particularly well, receiving an average tax break of almost $37,000 annually, which is more than the total annual taxable income for everyone in the bottom 60 percent. 

As for the $1 billion in annual corporate tax breaks, it sure isn't going to mom-and-pop shops owned by middle-class families. Indeed, small businesses specifically and the vast majority of businesses in Illinois generally — around 70 percent— pay nothing in state corporate income taxes annually. It's only those very large companies (collectively less than 9 percent of all Illinois businesses) that get the lion's share of this tax break. 

The kicker: despite not really benefiting from this tax cut, middle-class folks will pay for it. That's because the services Gov. Bruce Rauner proposes cutting to pay for this tax break — child care, mental health, community care for seniors, health care services and more — primarily are consumed by either middle-income families or folks trying to become middle income.

Even the governor's proposed higher-education cuts create greater hardship for middle-income families than for their more affluent counterparts, because it will be far more difficult for folks in the middle to pay the inevitable tuition hikes these cuts will foment.

The bottom line is clear. To promote a growing, prosperous middle class, Illinois needs the fiscal capacity to fund core services that both create opportunity and help cover costs that generally outstrip the budgets of middle-class families — capacity Illinois simply doesn't have after losing $4.7 billion in revenue to a tax cut that harms, rather than helps, the middle class. 

Source: State Journal-Register