A new analysis of Illinois’ proposed progressive income tax rates found the state would have steeper rate increases among higher income brackets than other states with graduated income tax structures, something the authors said “punishes” wealthy Illinoisans.
Editor Kerry Lester and her team of analysts found Illinois would be putting more pressure on higher earners than other states by hiking rates by 64 percent, or 2.8 percentage points, on income above $250,000.
“Illinois has this giant ramp-up right around the $250,000 income mark,” she said. “Opponents of the current rate plan structure would say that it’s the wealthy that are overwhelmingly punished once you cross a certain income threshold.”
Specifically, income between $100,000 and $250,000 would be taxed at 4.95 percent, while any income over that would be taxed at 7.75 percent. Illinois' existing flat income tax rate is 4.95 percent. Proponents of the progressive income tax plan in Illinois have said 97 percent of the state's taxpayers would see modest income tax reductions.
Only Vermont, which nearly doubles rates on income over $38,700, has a greater change in rates.
The proposal also reverts a taxpayer’s income back to a flat rate of 7.99 percent on all income once a single filer makes more than $750,000 or joint filers make more than $1 million.
Political experts Lester spoke to said the large differences in rates were “ham-fisted” and could encourage taxpayers to find ways to pay less.
Top loading the tax liability onto a small number of high-income earners could bring increased state revenue volatility, meaning the amount the state collects each year could fluctuate more than it does under the state's existing flat income tax.
Lester said lawmakers could change both the rates and brackets in the future.
“While this legislative proposal has passed both houses, there’s a lot of time between November of 2020 and potentially after, if veto session is still in effect,” she said.
Democrats have estimated the proposed rates would bring in an additional $3.5 billion for the state each year.
The rates are contingent on voters approving a ballot initiative next year that would scrap the state constitution’s flat tax provision to allow for a progressive income tax structure with higher rates on higher earners.