Analysis Raises Doubts Higher Income People Will Leave If Illinois Adopts A Graduated Income Tax
Illinois lawmakers have approved a plan that could change how Illinois taxes income. In the nearly 40 years the state has had an income tax, it’s been a flat tax. That means no matter how much you earn, you pay the same percentage.
Now, Governor J.B. Pritzker and other advocates of a graduated tax say it’s time for a new approach.
They want higher earners to pay more. The plan that passed the General Assembly this week places a question on the 2020 fall ballot that could accomplish just that. 60 percent of voters will need to support the idea for the constitutional change to occur.
While there are supporters, the idea also has its critics. They say if it becomes a reality, a graduated tax will be devastating for the state as those with more money will flee Illinois. They also see it as a disincentive to invest here and create jobs. And, they point out the rates aren't set in stone and could be raised in the future so that more people face a tax increase.
We don’t have a crystal ball for predictions. But we can look at what happened when the state raised the flat income tax by 67 percent earlier this decade. Bob Secter, Senior Editor with the Better Government Association, analyzed tax data and found it was the lower income workers and people downstate who left, not the wealthy.
"Illinois is indisputably a state with a lot of financial problems," he said. "But people make decisions on an individual basis. The people who appear to be leaving are the people who have the least opportunity."
"The number of wealthier taxpayers grew substantially even as the overall pool of taxpayers in Illinois either stagnated or retreated some."
The Governor has stated the graduated rates he supports will mean only about 3 percent of taxpayers will pay more. Those families earning $250-thousand or less per year will see a slight break, he said. He's banking on the change being approved as a way to help the state bring in billions more in revenue and dig out of the financial trouble that has come to define Illinois in recent years.
Of course, there can be a threshold that goes too far, even for the wealthiest. But Secter points out the top rate Illinois is proposing, at nearly 8 percent, would be more than some states and less than others.
"There are other states that have no income tax at all, but have different mixes of taxes," Secter adds. "One state might have one mix. Another state might have another mix. But you end up paying in the end no matter what it is."
While Secter's review of tax data involves a different tax structure and a different time period, he sees similarities to the conversation happening now surrounding a graduated income tax.
"If that is any guide, you could say these dire consequences likely won't happen," he said.