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Civic Federation Calls For Taxing Retirement Income

  As more baby-boomers retire, Illinois is increasingly missing out on a revenue source. Of the 41 states with an income tax, Illinois is one of only three that exempt all pension income.

A new report from the Chicago-based Civic Federation says Illinois needs to take a longer-term approach to budgeting; one that is rooted less in politics, and more in reality. Most notably. the group recommends Illinois extend its current income tax rate for a year before gradually rolling it back.

But it also recommends a permanent change to Illinois' tax code: the taxation of retirement income. Civic Federation President Lawrence Msall says the current policy of exempting it means the state's foregoing about $2 billion.

"We can't afford to give a tax free benefit to everyone's retirement income, whatever the source," he said.

He suggests a graduated tax, that exempts those with the lowest retirement benefits. President of the Illinois Education Association, Cinda Klickna, says the teacher's union could support the plan, under conditions such as that.

"We actually have proposed that in the past. It has usually stopped when people realize their 401(k) would also be taxed," she said.

Indeed, a suggestion in 2011 that Illinois begin taxing retirement income was quickly nixed.

Amanda Vinicky moved to Chicago Tonight on WTTW-TV PBS in 2017.
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