illinois fair tax

Illinois Lt. Gov. Stratton Warns 20% Income Tax Hike Possible if Graduated Tax Proposal Doesn't Pass

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Illinois Lt. Gov. Juliana Stratton warned Thursday that if voters do not approve the constitutional amendment on the November ballot to shift from a flat to a graduated income tax, all residents of the state could see an income tax hike of at least 20%.

Stratton made the comments during a virtual rally held in support of what she, Gov. J.B. Pritzker and proponents of the measure have dubbed the "fair tax." The proposal is a constitutional amendment in the 2020 general election to change Illinois' income tax structure from a flat tax - one rate for all, regardless of how much money you make - to a graduated income tax.

A graduated income tax, also called a progressive tax, is a tax structure that levies increasingly higher tax rates on higher-earning individuals or businesses. Essentially, under this kind of system: the more you make, the more you pay.

Thirty-two other states in the U.S. and Washington, D.C., all have some form of a progressive income tax, ranging from 0% on the lowest earners in South Carolina to as high as 13.3% on incomes over $1,000,000 in California. Illinois and its Midwestern neighbors Indiana and Michigan are three of eight states that impose a flat tax.

Stratton on Thursday called Illinois' flat tax "fundamentally unfair" and "outdated," saying a graduated tax would be "asking millionaires and billionaires to pay their fair share."

But if it doesn't pass, she issued a warning.

"To adequately address the budget crisis under our current tax system, lawmakers will be forced to consider raising income taxes on all Illinois residents by at least 20% regardless of their level of income," Stratton said during the livestreamed event organized by the Vote Yes for Fairness organization advocating for the amendment's passage.

"We all know that our middle and lower income families cannot withstand a 20% tax increase and it will only serve to deepen the dramatic inequities that we already see across the state," she continued, adding, "It will drive out our residents and it will drive out investment in Illinois. Not only will the fair tax allow the fiscal environment of Illinois to stabilize, it will have a positive ripple effect allowing us to better and more adequately fund our schools and other important programs along with lowering property taxes."

A spokeswoman for the Coalition to Stop the Proposed Tax Hike Amendment, a group advocating against the amendment, was quick to criticize Stratton's comments in a statement Friday.

“If you need more proof Springfield has too much power and can’t be trusted look no further than telling voters to support a tax hike amendment or politicians will continue to raise them for you,” said Lissa Druss. “It’s clear there’s only three words the Springfield politicians understand: Raising your taxes.”

A 20% increase would bring Illinois' current income tax rate up from 4.95%, where it stands now, to 5.94% across the board.

Illinois' current individual income tax rate is the same for everyone because the Illinois Constitution dictates that any income tax imposed by the state be "at a non-graduated rate." Any amendment to Illinois' Constitution, including the removal of that requirement, requires ratification by voters in a general election.

In 2019, Pritzker signed two separate pieces of legislation to change to a graduated income tax: a Constitutional amendment to repeal the state's flat tax requirement, and a new law to set the rates. The second won’t take effect unless voters approve the amendment, which can be ratified one of two ways: if three-fifths (or 60%) of people voting on the amendment approve it, or if a simple majority (50% plus one) of all voters, including those who skip the question on their ballots, approve it.

Here's how the question will appear on your ballot, with an option to choose “Yes” or “No”:

Proposed Amendment to the 1970 Illinois Constitution
Explanation of Amendment

The proposed amendment grants the State authority to impose higher income tax rates on higher income levels, which is how the federal government and a majority of other states do it. The amendment would remove the portion of the Revenue Article of the Illinois Constitution that is sometimes referred to as the “flat tax,” that requires all taxes on income to be at the same rate. The amendment does not itself change tax rates. It gives the State the ability to impose higher tax rates on those with higher income levels and lower tax rates on those with middle or lower income levels. You are asked to decide whether the proposed amendment should become a part of the Illinois Constitution.

If the amendment passes, that alone won’t change the rates – it will only allow for the graduated structure. The second piece of legislation on this issue signed in 2019 sets new rates that would take effect beginning the year after the amendment is ratified – so on Jan. 1, 2021, if voters approve it in November.

If approved, the rates would be as follows:

  • For single and joint filers earning less than $250,000 per year, the first $10,000 would be taxed at 4.75%, then income between that and $100,000 would be taxed at 4.9%. From there, up to $250,000, the rate would be 4.95%, where it stands today.
  • Above $250,000, the rates begin to differ for single and joint filers. For single filers from $250,000 to $350,000, and for joint filers up to $500,000, the rate would be 7.75%. That increases to 7.85% for single filers reporting between $350,000 and $750,000 in income, and for joint filers from $500,000 to $1 million.
  • Under the new structure, single filers earning more than $750,000 and joint filers earning more than $1 million would be taxed at the top rate of 7.99%. For only that highest bracket, the taxpayers’ net income would all be taxed at that top rate, unlike the rest of the brackets.

It's important to note: For anyone paying below that top rate of 7.99%, the lower rates will not apply to all of your income. It works more like a ladder than a blanket rate, so the majority of residents’ first $10,000 would be taxed at the lowest rate. You would then pay the corresponding rates for each bracket, unless and until you reach the $750,000 mark - or $1 million for joint filers.

How will this affect your bottom line? Under this new structure, anyone making less than $250,000 a year would pay the current rate of 4.95%, with a slight decrease in the rates on their income up to $100,000. Pritzker says this means 97% of Illinois residents would pay the same or less in state income taxes.

Democratic officials have largely expressed support for the change to what Pritzker’s dubbed a “fair tax,” while the generally tax-averse Republicans in Springfield all voted in lockstep against the measure. Interest groups on both sides of the issue have launched aggressive campaigns both in favor and against the progressive tax structure.

The Vote Yes for Fairness political committee is advocating for the amendment’s passage, funded almost exclusively by Pritzker, who contributed a whopping $56.5 million to the effort.

Pritzker himself is the richest elected official in the country, with Forbes estimating the Hyatt Hotel heir's net worth at about $3.4 billion. Portions of annual tax returns he’s made public show he’s reported millions of dollars in income each year – meaning he would be among those paying more under the progressive tax structure he’s backing.

The Coalition to Stop the Proposed Tax Hike Amendment committee is pushing for the measure to fail and is funded in large part by another billionaire: Ken Griffin, the founder of hedge fund Citadel who is Illinois’ richest man, with Forbes estimating his net worth to be about $15 billion. A big-time Republican donor who previously gave Rauner’s campaigns more than $36 million, Griffin put $20 million into the effort to stop the graduated tax.

Those opposing the amendment argue that it does not have any requirements on how the legislature is allowed spend the additional revenue and could pave the way for lawmakers to raise taxes again in the future – though the General Assembly has always held this authority, just previously confined to a flat rate.

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