By: Ted Dabrowski and John Klingner

One of the latest ads from Illinois’ progressive tax proponents deserves a fact check. Here’s their video: https://www.facebook.com/104919517531062/videos/3079797422131585

The ad says, correctly, that middle-income workers in Wisconsin and Iowa pay lower tax rates than millionaires. From there, the ad jumps to a claim that Illinois has “one of the most unfair tax systems in America” because everyone in Illinois pays the same flat tax rate of 4.95 percent. It also makes a second claim that Illinois is “one of the only states where everyone is forced to pay the same tax rate.”

Both of those claims are false. The ad cherry-picks Iowa and Wisconsin as examples, ignoring that Illinois’ other neighbors all have flat or near-flat tax rates. In total, the U.S. has nine states with flat tax rates and another nine states that don’t tax working income at all. That makes 18 states that tax everyone at the same rate.

And the ad also ignores another 18 progressive tax states that tax both middle-income earners and millionaires at the same marginal tax rates.  

The other big claim the ad makes is that 97 percent of Illinoisans will pay the same or less under the progressive tax rates proposed by the legislature. That may or may not be true initially, but it certainly won’t be in the future.

Here are the facts about Illinois’ supposed “most unfair tax system:”

1. The ad ignores that Illinois is nearly surrounded by flat tax, or near-flat tax, states. Michigan has a flat tax just like Illinois. All Michiganders pay the same rate of 4.25 percent. The same goes for residents in Indiana, with a flat tax of 3.23 percent. Kentuckians, too, pay a flat tax rate of 5.0 percent. 

And Missouri’s progressive tax structure is essentially flat, taxing all income above $8,424 at a rate of 5.4 percent.

Low- and middle-income workers and the wealthy in those states all pay basically the same rate.

2. It’s not just Illinois’ neighbors that have a flat tax structure. Colorado, Pennsylvania, North Carolina, Massachusetts and Utah also have flat tax schemes. Again, in those states everyone pays the same tax rate.

3. Then there are the nine zero income tax states. Tennessee, Florida, Texas, Washington, Nevada, Wyoming, South Dakota, Alaska and New Hampshire – they don’t tax anyone’s working income. It’s the same zero income tax rate for everybody. (Tennessee and New Hampshire do tax investment income).

In all, there are 18 states nationally that tax low-, middle- and wealthier-income taxpayers at the same rate. But there are even more states that do so when you consider many have nearly-flat progressive tax structures.

4. Many “progressive tax” states tax low- to middle-income workers at the same marginal rate as millionaires. Eighteen of them, in fact. The table highlights those states. For example, Georgia taxes all income above $7,000 at the marginal rate of 5.75 percent. Idaho’s top marginal rate is 6.93 percent on all income greater than $11,554. Neighboring Missouri has a top rate of 5.4 percent on all incomes above $8,424.

The reality is, Illinois is far from “one of the only states” to essentially treat low- to middle-income workers the same as millionaires. Thirty-five other states do the same.

One other quick point not related to what rates different income groups pay:

5. Many progressive tax states hit the middle class harder than Illinois does today. Almost all of the top tax rates in the table are higher than the 4.95 percent Illinoisans pay today, before taking exemptions and deductions into account. Just go down the list. Nebraska’s top rate is 6.84 percent on incomes over $31,160. That’s certainly not “millionaire” income levels. Nor is it in Iowa, where residents pay a max of 8.53 percent on the income they make over $73,710. In that whole group of states, only New Mexico has a top rate that’s lower than Illinois’ current flat tax.

Illinois is already the “least tax-friendly state” in the nation, according to Kiplinger. Illinoisans pay the country’s highest property taxes, the third-highest gas taxes and the sixth-highest combined sales taxes. A progressive tax structure would give lawmakers power to adjust both Illinois’ income tax rates and brackets, which risks making the state even less competitive on overall tax burdens.

**************

Here’s the truth about the ad’s claims that 97 percent of Illinoisans will pay the same or less income taxes under the progressive tax rates lawmakers have proposed:

6. The 97 percent claim may or may not be true initially, but it certainly won’t be in the future. Illinois’ deficits, pension costs, unpaid bills and growing expenses will cause politicians to raise tax rates on middle-income residents. Lawmakers have never presented detailed numbers proving the 97 percent claim nor that their rates can raise the amount of revenue they project, especially now considering the economic impact of COVID-19. 

The only thing we do know is that the proposed rates will go into effect on January 1 if the constitutional amendment is passed. And there is nothing to stop lawmakers from passing new rates and brackets at any time.

More hikes are inevitable because the proposed progressive tax rates raise only $3.6 billion in new revenue, far short of the amount necessary, absent major spending reforms, to cover Illinois’ annual structural deficits, it’s unpaid bills, the true costs of state retirements and more.

Add up all those costs and politicians need to raise $10 billion in new revenues annually. Wirepoints calculated new tax rates based on those needs and found that marginal income tax rates would grow to 9 percent on middle-income residents and to more than 11 percent on the wealthy. (The example here is, of course, just one of many potential rate structures, but it’s a fair representation of rates spread out across middle-income and wealthy taxpayers.)

And then there’s the billions in new spending that tax proponents have publicly and repeatedly promised the progressive tax will also pay for, including billions in additional K-12 education funding and billions for property tax relief. 

To raise $15 billion, marginal rates would have to double for the middle class and nearly triple for Illinoisans making more than $1 million a year.

The reason why is simple: middle- and lower-income taxpayers make a majority of the income in Illinois. Two-thirds of Illinois’ taxable income rests with residents that make $250,000 or less a year. If lawmakers don’t want to pass reforms, they’ll have to go after middle-income residents. 

7. Without reforms, Illinois’ tax structure could look like California’s.

Illinois is in the worst financial position of any state in the country (see Part 1 of our latest Special Report: Illinois is the Nation’s Extreme Outlier). It has the worst credit rating in the nation, just one notch from junk. It has $241 billion in state pension debts, the most in the nation. It has the country’s biggest population losses, with 170,000 people lost since 2010. And it has some of the highest taxes, including the nation’s highest property taxes. Without major reforms, Illinois will need billions more to keep its finances from collapsing.

That means the potential tax rates shown above aren’t out-of-line. In fact, they’re in the realm of California’s current rates. That may sound outrageous to some, but that’s the reality of Illinois’ finances.

The Golden State hits its wealthiest residents with marginal tax rates above 10 percent, but it also hits lower- and middle- income groups with high rates as well.

To extract the money it wants, California hits income between $32,960 and $45,753 with a marginal tax rate of 6 percent, and the rates only go up from there. Additional income between $45,753 and $57,824 is taxed at 8 percent. And additional income between $57,824 and $295,373 is taxed at 9.3 percent.

In the absence of reforms, especially pension reform, those are the same sort of rates Illinoisans can look forward to when Illinois lawmakers are finally forced to fill in the state’s structural deficits and pay for all the new spending they’ve promised. 

Read more about how a progressive tax would hurt Illinoisans: 

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Joe Blow
5 days ago

anyone that votes yes on this has a head just as empty as Joe Biden

John Tallman
5 days ago

Any Illinois resident that falls for the Democrat “solution” to the financial crises in this state deserves what they get. Tollways were supposed to pay for themselves, state income tax was necessary, business and income tax hikes, gambling, now pot is legal all while state finances continue to spiral out of control. Enough. Rauner tried to negotiate with these shysters, they just waited him out so now we have Boss Pritz. I don’t know what the answer is but these guys won’t give up until the lights literally go out

Marla
14 days ago

If Pritzker wants it, people of Illinois you must realize it will not be good for us! Vote NO

Riverbender
13 days ago
Reply to  Marla

That is the best and simplest reason that people need to vote no for this tax.

dr rob
14 days ago

Here’s one of the dumber arguments I’ve heard about this proposed tax:

Under the current system, which taxes everyone at the same rate regardless of income, the top 1% of Illinoisans only have to pay approximately 7% of their income in state and local taxes.

In contrast, middle and lower-income families are forced to pay nearly double – around 13% of their income in state and local taxes.

The Fair Tax will help lift the burden off our working families, while finally forcing the wealthiest residents to pay their share.

Governor of Alderaan
15 days ago

There’s only one thing you need to know: the Dictator is a liar

Poor Taxpayer
15 days ago

NO TAX IS FAIR. The poor honest hard working taxpayers pays and the Greedy Government workers take and take and take.
Illinois “Land of Slavery”

Stevet
15 days ago

Dont like it then move get a second home in indiana or florida and claim it as your main residence. Thats what I will do. I refuse to pay this crooked state anything more. The taxes I will save will pay for the second house payment. Illinois will only go further down the drain.

Rick
16 days ago

Now that so many more can work from home and companies are ok with it. Covid was the big test. People can live anywhere with internet and still work. All these skyscrapers are not needed to house thousands of office workers in close quarters, they are mostly empty now and won’t fill up again. My wife and I are looking at Tennessee, since I won’t have to wait to retire, I’ll work online from Tennessee! Thank you covid for proving to companies that remote working works, also for proving that companies have no compelling reason to ask me to drive… Read more »

Last edited 16 days ago by Rick
Susan
17 days ago

The timing of this tax hike is as transparent as that of the recent school funding law change which locked in fixed minimum nominal amounts of Chicago schools’ funding just before big TIF expirations would cause EAV adjustments rendering old funding apportionments unfavorable to Chicago schools. Now we have property tax rates at practical maximums in collar counties (in Woodstock, property taxes cost over 10% of median income household living in median value home), so the higher cash flow needed to pay public worker pensions must come from somewhere else. Illinois constitution decrees pension entitlements cannot be impaired but does… Read more »

Freddy
17 days ago
Reply to  Susan

Don’t forget that in Ptell counties like McHenry/Winnebago,Boone and 33 others, taxing bodies are limited to increases of 5% or 1/2 of inflation whichever is less. So property tax’s will not double over a few years. But many new tax’s will be instituted. With the new assessment on my Rockford rental going up and it looks like across the board my tax to value ratio should be 3.85%(was over 4%) of total unless only my area went up in value then I will pay more. I just paid part 2 of tax’s today at $3,500 or a new 65-70″ 8K… Read more »

Susan
16 days ago
Reply to  Freddy

PTELL does not limit property tax rates from rising. And I can assure you that property tax rates in Woodstock Il have doubled, then doubled again over 20 years. (1% became 2%, 2% became 4%). It seems likely that another doubling will occur as this 4 % rate rendered our area undesirable for any contributory (non-TIF) development. Existing properties bear the sole and rising burden of taxing bodies’ demands for more and more and more money. This does not make for a vibrant local economy or create incentives for home improvements. Remember property tax rate is a ratio representing tax… Read more »

Freddy
16 days ago
Reply to  Susan

True but in our area property values have gone nowhere mostly down for decades now except for the last two years and the tax rate increased to 15.29% on 1/3rd value at its highest point thus we seen 11% increases in the tax rate. In Woodstock values were going up somewhat year after year so the value is up and the tax rate went up also thereby causing tax’s to double. My uncle sold his properties on Rose Farm Road and 120 because his tax’s were $9-10K and the guy who bought it lost it to foreclosure a few years… Read more »

Susan
16 days ago
Reply to  Freddy

I share your pain.
As to the general point I was trying to make:
I wonder if this tax hike constitutional inclusion ( which introduces unfettered ability to raise income taxes on all brackets at will) introduces the obligation to the State of funding unimpairable pension entitlements …?

Poor Taxpayer
15 days ago
Reply to  Susan

If you do not like it MOVE, is what I was told by a $150,000 year Pensioner who started at age 48. Will collect $6 million or more.
Taxes must go up, up and away so they can play.
Illinois “Land of Slavery”

Poor Taxpayer
17 days ago

Can you say “Mass Exodus”
Florida here they come, get out the way all you Rich Cops, teachers and Firemen.
The Luxury homes are for the poor honest hard working taxpayer. Make your house payment by what you save in taxes.

nixit
17 days ago

Missouri’s graduated tax rates are essentially flat because they date back 50 years and the tax brackets weren’t indexed to inflation until recently. The Fair Tax doesn’t index the tax brackets either. Bracket creep, here we come.

Freddy
17 days ago

If a politician spends over $50M of their own money to promote a graduated tax to raise their own tax’s so what is to be expected in return? This seems to be more of an investment of sorts. Is this just maybe a tax deduction or will there be huge gains to be made? Right now he has the power and money. This is his Plan A now but what is Plan B later?

Governor of Alderaan
17 days ago
Reply to  Freddy

Plan B is to take the toilets back out

Dr Nemo
14 days ago
Reply to  Freddy

The reason the Party leader tapped JB to run for governor was that JB could and would finance his own campaign and so the Party could fully devote its own resources to maintaining its supermajorities in the legislature. JB had no particularly successful record of executive achievement or public service to recommend him to voters, but the Party leader’s endorsement suffices here now to bring the press and a voting majority into line. Now JB is largely self-financing a campaign to add to the Party’s taxing power so that in an election year, the Party can again deploy its resources… Read more »

David Lucas
17 days ago

The problem in Illinois is not which tax scheme to adopt the problem is corruption and overspending. Until that is fixed no tax scheme will work because there will never be enough money. Trust has been completely lost. Vote no on this current tax scheme until plans are made to control spending.

rick1099
17 days ago

Pritzger/Madigan theft of public funds act is a suitable name for the fair tax lie. Cut some programs, reduce spending are some brilliant ideas to save some cash. Are any of the dopes sitting in Springfield aware of those options?

Poor Taxpayer
17 days ago

No has done more for Florida Real Estate than the state of Illinois.
Look out the rush of the rich leaving is going to be a stampede.
Let all the lazy greedy government employees pay all the taxes.
Illinois is DOA, a goner. No hope for generations to come.
Good Bye Illinois. It is all over for sure now.
Illinois “Land of Slavery”

Eugene from a payphone
17 days ago

The X marks are already filled out on ballots assuring this odious referendum passes. The voter fraud in this upcoming election will be monumental. Years ago I saw the engineer at a public hospital in Oak Forest IL request, receive and cast ballots for all patients (approx. 200 to 300). The votes all supported Dem. Candidates. I expect the same in Nov.

NoHope4Illinois
17 days ago

Bingo! This is what Chicago Democrats want to really do. It’s all tax and spend.

JimBob
17 days ago

Great way to get public support is encouraging people with jobs and resources to vote in favor of those who want to extract their wages and wealth. I don’t think there are enough people on the public dole to carry the vote IF they knew what they were voting for. How far down the November ballot will one have to read in order to find this issue? And in the “vote by mail” effort how many will look below the presidential contenders?

One keeps hoping that the politicians can’t fool all the people all the time.

anonymous
18 days ago

Tiny violins to the Dems and this “fair” tx.
They want to wring every last penny out of Illinois and the Federal government so they can play and give to their ilk.
This is a blank check to do what ever.
I do not blame anyone leaving Illinois.

Douglas
18 days ago

The ad fails to mention that IL and its local governments tax FAR more other things that other states do not. Taxes by state/local on internet, phone, natural gas, DOUBLE tax on gasoline, electricity etc. Also, the highest property taxes.

NoHope4Illinois
17 days ago
Reply to  Douglas

Hey, in Peoria they now have a ‘rain tax’, in addition to a ‘flush tax’!

Riverbender
17 days ago
Reply to  Douglas

Don’t forget those pesky fees. I now have to buy an annual habitat stamp to trap nuisance animals on my own property. Have a raccoon or possum destroying things…you better get a habitat stamp and be extra wary of the regulations what you do with the animal after you caught it so you don’t incur multiple fines along the way.

The Truth Hurts
18 days ago

I’m really surprised they didn’t pass a bill that raised the flat tax to 6 or 7% that would be implemented if the progressive tax isn’t approved. They are really banking on the “97%” wont see a tax increase to get them over the finish line. I guess they figure if it doesn’t pass they can bring it back with the above threat. Either way taxes are going up in this state.

JimBob
17 days ago

Tax rates are surely going up. Do you think tax collections will go up? How close are we to the point of diminishing returns?

The Truth Hurts
17 days ago
Reply to  JimBob

I do think tax collections will go up for the time being. People complain about high taxes and there are plenty of articles written about out migration but until “enough” people leave that cause tax revenue to become flat or decline they will continue to raise rates. Since 2010 Illinois has raised all kinds of taxes. The population has declined around 150k residents. Yet revenue doubled during that time. Imagine a business owner raising their prices and doubling their revenue and only losing 1.2% of their customer base. Their old customers tell them they are never buying their product again… Read more »

Mick the Tick
17 days ago

All great points Truth Hurts, which is why Wirepoint’s solutions/suggestions will be ignored for years. Of course when that final thousand cut finally drains the last drop of blood from Illinois, the state will need to be on life support for many, many years.