By: Ted Dabrowski and John Klingner
To all those Illinoisans who opposed the progressive tax back in 2020: you’re being proven more right every day.
Illinois would have become even less competitive at a time when more and more states are increasing their economic competitiveness by moving to a flat income tax.
This year alone, four states decided to transition their individual state income tax from progressive to flat:
- Iowa passed a law that will turn its progressive tax into a 3.9% flat tax by 2026.
- Georgia’s income tax is scheduled to convert to a 5.49% flat rate by 2024.
- Mississippi will go from a progressive tax to a flat tax next year.
- Arizona, after a lengthy court battle, has finally won the right to transition to a 2.5 percent flat income tax in 2024.
There are also movements in Wisconsin and Oklahoma to make those states’ taxes flat as well.
Both Georgia and Arizona’s change to a flat structure are not automatic and must meet certain financial conditions to occur. Still, the fact that so many states are moving towards a flat income tax structure – or to no income tax at all as Tennessee did in 2021 – should tell Illinoisans something: they dodged a bullet by rejecting Gov. Pritzker’s progressive push.
In contrast, the last state to switch to a progressive tax structure was Connecticut in 1996. Progressive tax structures are increasingly becoming outdated.
There’s a downside to so many states moving to a flat or no income tax: Illinois is losing one of its last competitive tax advantages. For years, Illinois was a flat income tax state surrounded largely by progressive tax states, including Iowa, Kentucky, Wisconsin and Missouri.
The flat tax helps offset Illinois’ other punishing taxes, including the nation’s highest property tax and the country’s second-highest gas taxes.
But now that income tax advantage is nearly gone. Kentucky went to a flat 5 percent tax rate in 2018. Iowa will go flat by 2026. Indiana and Michigan already have flat tax rates of 3.23 percent and 4.25 percent, respectively.
Missouri, while still maintaining a nine-bracket progressive rate structure, has been flattening its brackets. The top marginal rate is now 5.4 percent on income over $8,584, making it similar to a flat tax for most earners.
That leaves Wisconsin as Illinois’ only neighbor with a truly progressive income tax.
Illinois’ competitiveness may suffer an even larger hit this year if residents vote for Amendment 1 on the November ballot. That amendment will enshrine Illinois’ collective bargaining rights – some of the most union-friendly in the country – in the Illinois Constitution. If that happens, any labor reforms that could lower taxes will effectively be blocked.
The passage of Amendment 1 would go in the opposite direction of trends in Illinois’ neighboring states. All those states with the exception of Missouri have passed Right-to-Work laws and most have passed major reforms to limit the powers of their public sector unions.
Illinois has long been a net loser of people to every one of its neighboring states. That outflow will only grow as its neighbors increase their competitiveness.
Read more from Wirepoints:
- Pritzker’s Fast Track To Washington Could Be Appointment To Vice Presidency
- Illinois economy, jobs suffer under potential presidential candidate J.B. Pritzker
- Gov. Pritzker is still proclaiming Illinois a Covid “disaster area.” How does he do it with a straight face?
- Four things you need to know about mass shootings and the new gun control landscape
- New State of Illinois Financial Statements Show $4.5 Billion Loss For FY 2021, Repudiating ‘Balanced Budget’ Claims
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Illinois lost another 54,000 tax filers and dependents, net, according to the IRS. Since 2000, fleeing taxpayers have taken $94 billion of annual adjusted gross income with them.
Wisconsin is making noise about going to 0%. Watch the sucking sound on both the Illinois and Minnesota border if that happens.
I’ve heard about this. I don’t think Wisconsin would be able to replace all that lost tax revenue with an increased sales tax. They’ll lose out on the border jumpers shopping across state lines.
Unlike its neighbor to the south, Wisconsin is a fairly well-run state. Their pension system is tops in the country. As high as their income tax rates are today, then might want to adopt the old “leave well enough alone” option.
Wisconsin’s problem is high property taxes to go along with their high income taxes. One of them has to be lowered.
Seriously what do you call high property taxes
Wisconsin ranked 8th highest out of 50 states.
https://www.tax-rates.org/wisconsin/property-tax
I’ve looked at property on Wisconsin. No high property taxes. A quarter of those in Illinois.
vacation homes on lakes tend to be taxed pretty high. The FIB tax
Colorado has a flat tax rate
Sure, but it doesn’t immediately border Illinois. Wyoming/Nevada have 0%….even better!
The democratic governor here is proposing to do away with the state income tax… we will see
Good catch. Massachusetts also has a flat tax. You’ll want to update the graphic above.
Corrected and updated. Another lesson why one should rely on the Tax Foundation, not other financial sites, for all your national and state tax issues…
WI has a progressive tax because it’s always considered itself a progressive state. They banned the death penalty in 1853, they were rabidly abolitionist, and Madison has been a leftist town where eight to nine out of ten people voted for Biden. But the progressive ideal throughout WI is quickly fading as the state is rapidly turning red. Outside of the largest city, Milwaukee, the rest of the state is prosperous small to medium sized towns and cities i.e. middle class. And the middle class these days is solidly Republican, to the consternation of Madison and Milwaukee that knows it… Read more »
Madison and the University of Wisconsin have deservedly been labeled the Kremlin of the Midwest. One of its professors in 2006 claimed 9/11 was a U.S. government led conspiracy. A recent niche.com survey found that 74% of students believe the campus is progressive or liberal, only 5% considered it conservative or libertarian. Take a long hot shower and scrub thoroughly after visiting Madison.
I had friends who lived in Madison, and much of the real estate was shabby, even on houses that would obviously benefit from a rehab. The problem was that a rehab would produce a high property tax bill. There were houses that were purposely left shabby on the outside, but were remodeled inside without permits to avoid the tax man.
Wisconsin brackets were crazy-high prior to 1980. Top rate was over 11%, Over the past 10 years, they’ve lowered the tax rate in their lowest tax brackets.
When anyone brings up Wisconsin’s income tax structure, I respond that they get Wisconsin government for their money. I’m not adopting Wisconsin tax code for Illinois politics.
Small Wisconsin towns usually are nice and have some vibrancy.
Missouri, while still maintaining a nine-bracket progressive rate structure, has been flattening its brackets. Missouri is a perfect example of one of the biggest flaws in the Fair Tax: no inflation indexing. Missouri’s tax brackets essentially date back to 1970 as they didn’t start indexing their brackets to inflation until 5 or so years ago. That’s why their progressive brackets today are essentially flat, just like GA and MS. We’d be in year 2 of the Fair Tax now had it passed. Based on last year’s inflation rate of 5% and what is looking to be 9% this year, that means the… Read more »
GA and MS essentially have a flat progressive tax today in which all the brackets are under $10K. Before AZ adopted that surcharge on high incomes (like Madigan’s proposed millionaire’s tax), its top rate was lower than our flat rate, which was a reminder that progressive rates don’t necessarily have to mean higher taxes. Iowa lets you deduct federal income taxes paid from your state taxable income. The point is there’s a lot of nuance in tax code and you can’t tax rates at face value. The Fair Tax ignored all nuance in their arguments, which is why nobody trusted… Read more »
I agree, but it ultimately only failed because Ken Griffin tried very hard to educate Illinois voters about same despite Pritzker and ilk deceitfulness in promoting. Without this extra effort, no doubt Illinois would have one more nail in coffin with progressively increased income taxes as well as retirement income eventually having an Illinois tax assessed for most too.
The governor is proud that he and his Democratic minions have “balanced” the budget, “earned” credit rating upgrades and generated enough “surplus” to “reward” us with a few shekels at the gas pump and checkout counter. With so much success, why not a permanent cut in the flat income tax to make the state more competitive and assure themselves of a political win in the face of an assured red wave in November? Because they know the true financial condition of state finances, but are too deceptive to tell the truth.
The minions also announced the state has deposited $100M into its “rainy day” fund. With a $46B budget, that deposit represents LESS THAN ONE DAY of spending. But, the governor said recently, “We are creating an Illinois that is economically prosperous for all.” A campaign to oust him and his aspiring political career can’t come too soon.
Our loser Governor is clearly posturing for a 2024 Presidential bid. Rather than be annoyed by, I am actually intrigued to watch Pritzker, Newsom and perhaps Warren argue during the Democratic Presidential debates who is the most woke!
Ask all of them, what would you do differently than Biden? What would your inflation or energy solutions be?
Odds are their answers will be even more extreme leftist policies. Get them on the record.
Going on the record with leftist extremist doesn’t matter. It’s everything the Democrat base wants to hear. This is who these people are. All throughout the campaign Biden said he was going to ban fossil fuels, use green energy, punish oil companies, no new leases or drilling. And he’s fulfilling his promise. And he got 81,000,000 votes.
Agreed, but laughably the Dems with Biden buyer’s remorse on the news recently thought that that they were voting for an innocuous drama-free old man, and were not aware of his platform. They’re upset now that they’re getting it “good and hard”.
Supposedly he got 81,000,000 votes. I have my reservations about the 2020 election. No proof, but a lot of lingering questions.
Newsom will be the nominee if Biden does not run. The hausfraus will go nuts over him.
Why on God’s green earth would that character appeal to housewives?