With Illinois’ financial future looking grim, more organizations are advocating for a tax on retirement income.
Gov. J.B. Pritzker’s office released its five-year plan, claiming that even with what his office described as “modest growth,” the state will need billions of dollars more than what it currently brings in.
Marie Dillon, director of policy with the Better Government Association, said Illinois’ budget mess was largely due to its pension debt that was caused by many who have retired and won't pay taxes on their income.
“Illinois doesn’t tax your pension, it doesn’t tax your 401(k), it doesn’t tax your Social Security, and yet the state is broke,” she said. “The generation that is about to age out from state income taxes is responsible for the pension debt and would be leaving it to this younger generation.”
Illinois is one of three states that has an income tax that excludes retirement or pension income.
The BGA joins the Civic Federation, the Civic Committee of the Commercial Club of Chicago the Center for Tax and Budget Accountability and others in calling for a tax on retirement income.
Dillon said passing legislation to tax retirement income would be difficult because it would directly affect the people who most commonly make their way to the polls.
“Senior citizens vote and politicians know that,” she said. “It’s always the third rail.”
She pointed to polling that showed retirement income taxes are very unpopular, but opinions change when the proposed tax is limited to the wealthy.
Opponents have said retirees are among the state’s largest consumer group. Many live on fixed budgets and already shoulder high tax burdens.
"Illinois has the highest property taxes in the nation, the sales tax in many communities is nearing 10 percent," Ryan Gruenenfelder, director of advocacy and outreach for AARP Illinois said in response to the Civic Federation’s call for a retirement income tax. "We have notified our members and many of them are responding, saying 'if this happens, I am going to leave the state of Illinois.' "
No state lawmaker has been brave enough to file legislation to tax retirement income, but a number of lawmakers have filed bills that would outlaw the practice or publicly oppose it.