By: Ted Dabrowski and John Klingner
You have to wonder if Gov. J.B. Pritzker ever saw the top marginal tax rates of other states before he released his new progressive tax plan. If he gets his way, he’ll give wealthy Illinoisans another big reason to leave the state.
Today, Illinoisans pay a flat rate of 4.95 percent on their incomes. But under the governor’s new plan, everyone with incomes above $250,000 will get hit with tax rates of 7.75 percent or more. That’s higher than the top tax rates in 44 other states.
The governor doesn’t seem to have taken into consideration how many of Illinois’ 175,000 tax filers making $250,000 or more may think paying rates of at least 7.75 percent to a state with massive debts, poor services, collapsed finances and a corrupt government isn’t very fair.
If Pritzker thinks they’ll all stick around, he’s mistaken.
His new tax hike will be just another huge incentive for the wealthy to take up residence elsewhere. They’ll get a far better deal on their income taxes if they do.
Zero tax states
Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming and Tennessee (by 2022) have all chosen not to tax the work people do.
Many of these states are among the fastest growing in the nation. They’ve seen their populations boom as they attract people – including thousands of Illinoisans – every year. Since 2009, Washington has grown by 13 percent, or 870,000 people. And Tennessee’s population is up 7.5 percent – by nearly 500,000 people.
Flat tax states
And then there are Illinois’ sister flat-income-tax states: Pennsylvania, Indiana, Michigan, Colorado, Utah, Kentucky, New Hampshire, Massachusetts, North Carolina.
All of them tax incomes at rates below 5.5 percent, rates far lower than Pritzker’s proposed 7.75-7.95 percent rates for Illinois’ $250,000-plus earners.
In moving Illinois’ rates higher through a progressive tax scheme, Pritzker is wiping out one of Illinois’ few tax positives – its flat tax structure.
Lower-taxing progressive states
The wealthy will get a better deal in most progressive-tax states too.
Pritzker says Illinois is an outlier because it remains a flat tax state even though 30-plus other states have a progressive tax structure. But with his tax plan, Illinois will become an outlier among progressive tax states for how much it taxes residents with $250,000 incomes and above.
North Dakota, Arizona, New Mexico, Ohio, Alabama, Mississippi, Oklahoma, Kansas, Maryland, Virginia, Missouri, Rhode Island, Georgia, Louisiana, West Virginia, Iowa (by 2023), Delaware, Nebraska, Arkansas, Montana, Connecticut, South Carolina, Maine, Idaho and Wisconsin all have progressive structures with lower tax rates on $250,000-plus incomes compared to Illinois under the Pritzker plan.
Even New Jersey and New York’s rates, which are some of the highest in the nation, would be less painful for residents earning $250,000 to $500,000 ($250,000 to $1 million in New York’s case).
The only states where rates would still be higher compared to Illinois would be California, Hawaii, Minnesota, Oregon and Vermont.
Increasing the tax burden
Illinoisans are having a hard enough time staying in this state. And the impact of the federal government’s tax reforms – reduced state and local tax deductions – revealed just how expensive high-tax states like Illinois really are.
If Pritzker gets his progressive tax hike passed, the burden on the wealthy will only get bigger.
Oh, the places they’ll go.
Read more on Pritzker’s progressive plan and the impact of high taxes: