The Costly Impact of Illinois’s Proposed Graduated Income Tax

This November Illinois voters will have the opportunity to vote on a ballot measure that would allow lawmakers in Springfield to increase taxes on middle-class taxpayers. This misguided measure would amend the state constitution to allow for the establishment of a graduated income tax structure, a departure from the current system that only permits taxation at a single rate. Granting lawmakers the authority to impose more than one income tax rate will result in frequent tax increases, thereby further burdening the hardworking taxpayers and small businesses across the Prairie State.

Since the adoption of Section 3(a) in the state Constitution in 1969, Illinois is statutorily required to impose an income tax at a single, flat rate - currently levied at 4.95 percent for individual filers and pass-through entities. If this proposal is adopted, the amendment would split Illinois taxpayers into six tax brackets, three of which would see an immediate tax increase upon passage. According to the Illinois Policy Institute, this tax change will raise taxes by almost $3.5 billion annually.

Illinois taxpayers are still reeling from the income tax increase in 2017, which raised the tax rate from 3.5 percent to 4.95 percent. The following year, Illinois passed several tax increases on gasoline, cigarettes, remote sellers, marijuana, sports betting, and vehicles. Despite growing taxation, Illinois flat 4.95 percent income tax remains its one tax advantage over all its  neighbors, except Indiana’s 3.23 percent. Supporters of the amendment assert that the increase only negatively impacts the wealthy, but history demonstrates Illinois residents will likely flee to tax friendly neighboring states, resulting in a decrease in the overall tax base. In addition to changes to the tax brackets, the amendment also includes a marriage penalty on joint filers and fails to provide adjustments in brackets for inflation.

The amendment’s impact on business is just as troubling. Illinois has one of the highest corporate tax rates in the country, with many small businesses filing under the individual tax rate. This amendment would significantly penalize these businesses, creating a reduction in wages and higher prices. Illinois would find itself in an uncompetitive posture compared to neighboring states with more reasonable tax policies. 

Voters should also consider the potentially devastating consequences of graduated tax authority in the hands of politicians. Under the flat tax, residents are protected from drastic tax increases due to the equality requirement - everyone must pay higher taxes, not just a select few. Under a graduated taxation method, taxpayers are subject to tax increases at a whim. 

Supporters of the amendment insist the graduated tax will result in a balanced budget. History again offers scant support for this assertion. Following the 2017 tax hike, the fiscal deficit in Illinois increased by 52 percent thanks to lavish government spending and union contracts, and led to one of the lowest credit ratings in the nation. Illinois currently has $137 billion in unfunded liabilities. So let’s be clear: Illinois doesn’t have a revenue problem, it has a spending problem. It is time for Illinois politicians to get serious about spending reforms. The adverse impact of this amendment on taxpayers, businesses, and government operations, should be sufficient to ensure its defeat.