Lawmakers are considering replacing the state’s flat income tax system with a progressive income tax that targets Illinois’ wealthiest residents.
The measure, pushed by Springfield Democrats, would amend the state’s constitution and affect everyone who gets a paycheck in illinois.
Its sponsors say the bill is the most important measure to be considered this year at the capitol.
“So that we could have lower rates on people with lower incomes, higher rates on people with higher incomes and bring some fairness to our tax system,” said State Rep. Christian Mitchell, (D) Chicago.
Illinois – at 3.75 percent – is one of only eight states to levy a flat tax on individual income. While nine states have no personal income tax, the rest – 33 others – tax income with a progressive system that requires the wealthier to pay higher rates.
“It makes the people who can afford to pay more, pay more; and the people who need the tax breaks to be able to survive, pay less,” said Katelyn Johnson, Action Now.
The sponsor of a companion bill to set the Illinois rates claims a progressive tax would raise an additional $2 billion for cash-starved Springfield, and that 99 percent of state income tax payers would pay less.
“What this plan is, is nothing more than a Trojan horse. It’s a back door for the Democrats to be able to change the rates after getting a change in the constitution,” said Christopher Lentino, Illinois Policy Institute.
A spokeswoman for Governor Bruce Rauner, who reported over $50 million in income last year, wrote “a progressive income tax would be the straw that breaks the illinois economy’s back – sending our state even further into the economic doldrums.”
The House and Senate will need super majorities in each chamber to put the constitutional amendment before the voters in November with an eye toward raising revenue with it in 2017.
“The entire solution it is not, but it does finally get us to a place where finally the top one percent would be paying their fair share instead of a situation where the middle class is paying a larger share of their income than those folks who have done extraordinarily well,” Mitchell said.
The bill is in committee. If it makes it passes the General Assembly, it’s possible it could generate additional revenue by next year.
A leading child advocacy organization threw its support behind the proposal Monday.
The graduated income tax plan, revived last week by a deputy to House Speaker Michael Madigan, would be contingent on voter approval since it alters tax code. Democratic state Rep. Lou Lang of Skokie said he’d like voters in November to consider his idea.
An advocacy group for social service providers said it could bring in much needed revenue.
“This will allow the tools we need to not rely on low- and middle-income families,” Voices for Illinois Children spokeswoman Emily Miller said Monday during a conference call with legislators. “We truly believe this is one of the best ways to move our state forward.”
Attempts to oust the flat income tax, as well as institute a so-called “millionaires’ tax,” have failed in Illinois before. An effort to let voters consider an income tax system overhaul died in the General Assembly in 2014, and Madigan has unsuccessfully pushed for a surcharge on annual personal incomes over $1 million.
The Illinois Chamber of Commerce questioned the impact on small-business owners and predicted top earners would move away.
Rauner and legislative Democrats remain at impasse over a state budget for the fiscal year that began in July.
The tax plan and a coinciding proposal to allow voters to decide on overhauling the state’s income tax system were expected in committee this week. But lawmakers will need to act quickly with a May 9 deadline to submit the proposed constitutional amendment ahead of November’s election, according to election officials. Also, a constitutional amendment requires a three-fifths majority vote, including 71 House votes, which is the total number of House Democrats.
Illinois’ current income tax rate for individuals is 3.75 percent, falling from 5 percent in January 2015 as the 2011 temporary income tax increase was rolled back.
Backers of Lang’s plan estimated up to 40,000 tax filers in Illinois – representing both single and joint returns – would pay more.
Lang’s legislation calls for most married taxpayers, filing joint or as head of household, to pay 3.5 percent on an income of $200,000 or less; 3.75 percent for those earning between $200,000 and $750,000; and 8.75 percent on earnings between $750,000 and $1.5 million. For those making over $1.5 million, the rate would be 9.75 percent.
All other taxpayers would pay 3.5 percent on income up to $100,000; 3.75 percent on income between $100,000 and $500,000; 8.75 percent between $500,000 and $1 million; and 9.75 percent on income over $1 million.
The bills are HB689 and HJRCA59.