A proposal under consideration in Illinois would convert the state’s single-rate individual income tax into a four-bracket tax with a top rate of 9.75 percent on individuals and 11.25 percent on small businesses.
The proposal is contingent on ratification of a constitutional amendment authorizing a graduated-rate income tax, which could also permit alternative graduated-rate income tax rates and brackets in the future.
Under the proposal, Illinois would impose the second-highest state rate in the country on pass-through businesses, after only California. Illinois would be third after the state of California and New York City when local income taxes are also taken into account.
By changing one of the most competitive elements of the Illinois tax code, the state would fall from 23rd to 48th on the Tax Foundation’s State Business Tax Climate Index.