By: Ted Dabrowski and John Klingner
State lawmakers across the country have given their residents permanent tax relief over the last two years. In all, 22 states have cut individual tax rates since 2021 as a result of booming state-government revenues. Michigan is the latest state to cut its income tax, triggered by overflowing coffers. That means every single one of Illinois’ neighbors have cut taxes within the last few years.
Instead of tax cuts for Illinoisans, Sen. Robert Martwick, an ally and surrogate for Gov. J.B. Pritzker, recently filed new legislation calling for a progressive tax scheme – never mind most of the country is moving away from progressive taxes and toward flat structures, and that Illinoisans rejected a similar proposal in a 2020 referendum.
A renewed call for a progressive tax hike is bad news for Illinois in the nationwide competition for people and businesses. We’ve documented in detail how Illinois continues to lose population and businesses to other states. Illinois’ lack of competitiveness is made all the worse as other states make themselves even more attractive through permanent tax cuts.
All alone in the neighborhood
All of Illinois’ neighbors have made and are making significant moves to lower taxes:
- Iowa passed laws in 2021 and 2022 to accelerate the state’s already-planned move from a progressive tax to a flat tax. The state’s top income tax rate was dropped from 8.53 percent to 6.0 percent in 2023 and Iowa will fully transition to a flat tax rate of just 3.9 percent by 2026.
- Missouri passed a law in 2022 to accelerate the state’s already-planned drop in its income tax rates. The state’s top income tax rate decreased from 5.3 percent to 4.95 percent in 2023. Missouri’s top tax rate is on income above just $8,968 a year, so it’s effectively a flat tax state.
- Indiana passed a law in 2022 that dropped the state’s flat rate from 3.23 percent to 3.15 percent in 2023. Indiana’s governor just signed a new budget that immediately drops the rate down to 3.05 percent, with additional drops occurring in later years.
- Kentucky passed a law in 2022 that dropped the state’s flat 5.0 percent rate to 4.5 percent in 2023. The law also requires the rate to fall to 4.0 percent in 2024 if specific financial conditions are met.
- Wisconsin passed a law in 2022 that dropped the rate of the state’s 2nd-highest income bracket (income between $24,250 and $266,930) from 6.27 to 5.3 percent. The latest budget signed by the governor makes additional cuts to the two lowest tax brackets.
- Lastly, Michigan’s flat rate of 4.25% is set to fall to 4.05%, the result of a 2015 law that requires tax cuts when specific financial conditions are met.
What’s most noticeable about our neighbors’ income tax structures is that many have laws in place requiring automatic tax cuts. Lawmakers don’t need to act to lower the burden on taxpayers when times are good. Except, of course, if they want to lower taxes even faster – which is exactly what Iowa and Missouri did in 2022.
Contrast that to Illinois, where leaders like Gov. Pritzker have only excuses to offer for their lack of permanent tax cuts. The difference in attitude, and action, towards taxes makes a big difference for people and businesses looking for a new place to set up shop.
Total tax burdens
Illinois continues to fall behind other states simply by doing nothing to improve its tax code. It’s one of the reasons why personal finance advisor Kiplinger calls Illinois the nation’s least tax-friendly state for middle-class families.
Add to that a growing crime rate, an avoidance of pension reform, high levels of corruption and struggling property values, and you have a state that more people want to leave and fewer people want to move to.
Read more from Wirepoints:
- It’s back…Illinois’ Sen. Martwick to again push for a progressive tax, even as U.S. states overwhelmingly move toward flat or zero income taxes.
- New 2022 Census data: Illinois’ population down another 104,000, nation’s 3rd-worst drop
- Illinois pension debts jump back up to $140 billion, state shortchanges its annual contribution by $4.4 billion
- Good luck attracting more teachers into Illinois classrooms…especially after looking at the record of Illinois’ new State Superintendent.
Audio and summary 
If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
That’s a very telling statistic. Could it be there’s a positive correlation between tax rates and the level of corruption and greed?
The combined state, county and municipal tax burdens on middle-class families in Illinois have been so high for so long that the people remaining here have become used to it.
Election after election, a majority of us have voted in favor of more of the same, in response to more of the same mendacious excuses and explanations from Illinois politicians.
I think that goes on until something really breaks, and I wonder what that will be.
Yep. For example, it seems many Illinoisans aren’t aware that a PT rate of 2+ percent is considerably higher than most of the rest of the country.
After the 2007/8 market crash, a number of states instituted various forms of temporary tax hikes to address their revenue shortfalls from that recession. Illinois was one of the few states that did not roll theirs back.
The rececssion created by the Democrates? The Housing Bubble Crisis, the recession was nothing more than a money making scheme for Obama , Clintons , Kerry and many more but, blamed on Bush. I am not NWO Bush fan however, if people really tracked legislation they would know that the Housing Bubble Crisis was created by Clinyon in 1995 when he passed legislation to make it possible for Fannie to manipulate mortgages . Follow the money. Every person involed in the Housing Bubble Crisis in the district of crimmnals (DC) was involved with real estate deals. Including the Fake Indian.
Illinois’ tax strategy may serve to attract losers like Silicon Valley Bank, Signature Bank, and FTX … It’s obviously a losing strategy yet it’s a winning strategy for Illinois given their longstanding propensity to lose … It’s all quite simple once you think it through backwards like they do.
Bob, strongly disagree about SVB. Any errors they made were in their home office in CA. They were a huge blessing to Chicago, which I know from working with them firsthand. I will write about it shortly.
WSJ had an interesting perspective on the mistakes SVB made – and it appears to boil down to poor decisions made by unqualified employees.
But the board enjoys a thumbs up for their DEI initiatives.
This DEI nonsense is a real albatross around the neck of our economy. Sad to say, SVB is an example of what can go wrong when boards are chosen on ideology instead of merit and experience.
Indiana also has a county/local option income tax and a wheel tax for cars. The grass is not always greener.
The overall tax burden in Indiana is considerably less – according to one recent publication – 5,000 per capita for Indiana vs 8,400 per capita for Illinois. And these numbers don’t reflect the huge burdens pension debt obligations will impose on Illinois taxpayers. How is the grass not greener from a taxpayer perspective?
Downvote – please correct my observation.
Do your homework. Indiana state + county income tax results in about the same burden as Illinois, even after factoring in that IN taxes retirement income. And you know Illinois is just itching to start taxing that.
Real estate tax savings are significantly lower in Indiana. I anticipate paying 60% or less by moving.
Here in the record high budget surplus state of SC, tax rates have been lowered and rates lowered in the future depending on future revenue. Considering the number of businesses and population that are moving to SC, revenues are projected to continue to increase. Hint to IL, obviously the lower the tax rates, the more businesses and people relocate there.
Politicians say they will tax the rich. In reality they tax the working middle class. Raise gas tax, and property tax. The Rich just move away when you attack them. That is why Punta Gorda, Fl has all the retired cops and firemen.
Lots of cops and firefighters I knew have also moved to TN, especially outside Nashville and Chattanooga. Another no income tax state with lower housing costs than FL, though increasing since TN no longer a secret.
Lower housing costs may have been true in the recent past, but right now, maybe not so much. The suburbs of Nashville seem like they are all priced like Northbrook or Glenview, no matter the suburb. Prices are up ~50% to ~100% in the past five years, depending on the location. Prices are starting to drop a bit but are still near their peaks. Sure, the real estate taxes and housing costs might be cheaper in TN, but overpaying for the house almost guarantees no real housing savings. Especially with 7% interest on that large mortgage, it could take decades… Read more »
Punda Gorda prices have nearly doubled in the past five years. The median sales price is still up 15.5% YOY. Not a good time to buy.
https://www.redfin.com/city/15328/FL/Punta-Gorda/housing-market
Many of the cops and firemen have made a tidy profit on Florida housing. The market is still strong because the state is business friendly and zero income tax.
Also, it is going strong because all the democratic northern states are raising taxes to pay off they overly generous pensions the sold for votes.
Illinois must raise taxes much, much higher to cover the Pension Time Bomb Exploding for the next generation. This bomb will last a lifetime. The largest generational theft in the history of the world.