(Editor’s note: This post has been updated to include information about a progressive income tax bill introduced in the Illinois General Assembly on April 15, 2016. Information on the new proposal appears follows the infographic on national tax systems below.)
Nearly 50 years ago, Illinois enacted its first income tax at a rate of 2.5 percent. As laid out in Article IX, Section 3 of the 1970 Illinois Constitution, the state only can impose income taxes at a flat or non-graduated rate — barring a constitutional amendment.
One of the issues during the 1968 gubernatorial race later won by Republican Richard Ogilvie was whether there should be a legalized income tax. Although many lawmakers voted against having a constitutional convention fearing a possible income tax, Ogilvie, with the support of then Chicago Mayor Richard J. Daley, persuaded the legislature in the spring of 1969 to vote for the measure. A major reason for bipartisan consensus on establishing an income tax stemmed from a set of 1966 amendments to the 1870 constitution that said there could only be a flat tax, and any tax rate imposed upon corporations could not exceed the rate imposed on individuals by more than a ratio of 8 to 5.
Subsequently, the legality of having such a tax was decided in the Illinois Supreme Court case Thorpe v. Mahin (1969), which found that there was a valid basis under the original constitution to have an income tax. This decision suggested that the state already had an inherent power to levy such a tax.
Although the flat vs. progressive tax debate routinely comes up, the last real attempt to amend the state’s Constitution was in the 2014 election year, when the Senate tabled aresolution introduced by state Sen. Don Harmon, D-Oak Park, to replace the flat tax with a graduated system.
Illinois is one of eight states with a flat tax rate system; 33 states plus the District of Columbia have a graduated or progressive income tax rate structure, while nine states levy no income tax (New Hampshire and Tennessee impose taxes on interest and dividend income).
But as Illinois grapples with the loss of billions in revenue from the sunset of the 2011 temporary income tax hike — not to mention more than $111 billion in pension debt and an ongoing budget impasse — lawmakers, including Republican Gov. Bruce Rauner, seemingly have made clear an income tax increase will be needed to stabilize the state’s finances.
So where does the Illinois income tax fit in the national state income tax picture? Here’s a look. See the table at the bottom of the infographic for tax brackets and income levels other states use to define their progressive tax systems. Click on the image to enlarge.
UPDATE: On April 15, 2016, Rep. Lou Lang, D-Skokie, introduced a bill that outlines a graduated-rate state income tax system for Illinois. The bill can’t advance unless the General Assembly places a constitutional amendment question on Nov. 8 ballot asking voters if they wish to change the Illinois Constitution to allow a progressive tax system. (A hearing before the House Executive Committee is scheduled for Thursday on aconstitutional amendment to allow a progressive tax.)
Under Lang’s plan, tax rates would range from 3.5 percent to 9.75 percent, with the steepest increases coming from those with incomes of more than $500,000.
The advocacy group Voices for Illinois Children, which supports Lang’s plan, produced this graphic summarizing the proposed tax brackets. (Scroll to page 4 at this link for full details.)
A progressive tax for years has been a goal of many Democratic lawmakers. It was one of main planks of Comptroller Dan Hynes’ platform when he unsuccessfully sought the Democratic nomination for governor in 2010.
But it’s been uniformly and strongly opposed by Republicans and anti-tax groups who argue that it only will bring in more money for Democrats to mismanage and that it penalizes success by taxing higher incomes at higher rates.
David From of the conservative group Americans for Prosperity issued this statement in response to Lang’s bill:
“Lang’s graduated income tax proposal – ironically introduced on Tax Day – is merely the camel getting his nose in the tent and would likely result in greater job loss and continual tax hikes by a General Assembly that seems to be unable to control its appetite for more tax dollars,” said From.
“Illinoisans should not trust the General Assembly enough to give them carte blanche ability to add brackets, increase the rates or lower the income threshold at which higher rates apply. It’s no accident a recent Gallup poll highlighted that a mere 25 percent of Illinoisans ‘are confident in their state government’ – worse than any other state. Illinois has one of the highest outbound migration rates in the nation and higher taxes on job creators is not going to help that situation. It will exacerbate it.
Lang’s proposal is more about the election year politics we’ve seen on display across the nation. However, punishing job creators is not the answer to moving Illinois in the right direction, nor is removing legislative barriers that prevent continual tax hikes by a General Assembly that has an addiction to tax dollars.”
Lang said his bill will modernize the tax code while cutting taxes for all but the top 1 percent of income-earners in Illinois.
“We don’t have to stay stuck in the past. There is another path forward that puts tax dollars back in the hands of hardworking families and eases the pain caused by recent budget cuts,” Lang said in a press release. “When my bill passes and the governor signs it, ninety-nine percent of taxpayers will get a tax cut.”