(The Center Square) – Should Illinois voters remove the state’s constitutional requirement that all income be taxed at the same flat rate, a new report estimated the state would become one of the nation’s worst destinations in terms of business competitiveness.
The nonprofit Tax Foundation analyzed the progressive tax ballot initiative, along with the rate structure lawmakers approved on the condition of its passage. It found the consequences of removing the flat tax protection on businesses would be multi-pronged.
“The proposal diverges sharply from ideal – or even typical – income tax structure. It omits inflation indexing (resulting in ‘bracket creep’), creates a marriage penalty, and includes a recapture provision that subjects the entirety of a taxpayer’s income to the top marginal rate once they reach that bracket,” authors Jared Walczak and Katherine Loughead said.
Should the measure succeed next month, the report said the subsequent changes would send Illinois from 36th-worst to 47th-worst in the nation in terms of its "state business tax climate index," which measures each state’s tax structure against others in factors important to job creators.
“Were the proposed graduated-rate income tax adopted, Illinois would trail its peers in just about every aspect of its tax code,” according to the report. “If businesses and individuals are leaving the state now, these policies can only make the problem worse.”
Vote Yes for Fairness President Quentin Fulks was asked about the analysis after it was highlighted in a Wall Street Journal editorial.
“We can talk all day about states that have this or states that have that,” he said. “Illinois doesn’t tax retirement income. A lot of states do. Currently, a lot of states have had high minimum wages, where we’ve had to claw tooth-and-nail to get that here in the state. We can’t continue to look at and compare states simply by just looking at it. Some of these states have more options because they’ve had additional options at their disposal because they haven’t been hamstrung by having to have a flat tax system in place, which is what is happening in the State of Illinois.”