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 States with progressive income taxes are not friendly places
for retirees: Each of them also taxes retirement income.
Illinois retirees could be next if Gov. J.B. Pritzker’s “fair tax” is approved
Nov. 3, state leaders have already said.
All 32 states with a progressive income tax impose some sort of tax on
retirement income from 401(k)s, IRAs, Social Security and pension benefits.
Mississippi limits its retirement taxes to the income of those who retire before
age 59.5.
Illinois state Treasurer Michael Frerichs last week raised the
issue. Taxing retirees was also proposed by former Chicago Mayor Rahm Emanuel
and Civic Committee of the Commercial Club of Chicago.
“One thing a progressive tax would do is make clear you can have graduated rates
when you are taxing retirement income,” Frerichs said while speaking at an event
hosted by the Des Plaines Chamber of Commerce. “And, I think that’s something
that’s worth discussion.”
Frerichs said people he knows earn six-figure pensions, but pay no state income
tax. He believes the current flat tax structure makes it impossible to
differentiate between those who earn hundreds from those who earn little in
retirement.
One of Illinois’ few bright spots has been the slower rate at which residents
over 65 leave the state. Out of all age groups, they are the least likely to
move out. Residents with jobs take their tax dollars with them in search of
friendlier tax rates, but retired Illinoisans have been able to stay because
they don’t feel the pressure of high income taxes. That could change under a
progressive tax.
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Connecticut’s progressive income tax hits single
filers on $50,000 and joint filers on $60,000 of retirement income.
As a result, Connecticut loses retired residents at a faster rate
than Illinois. Another thing progressive income tax
states have in common is low growth rates. Four of the five slowest
growing states – West Virginia, Connecticut, Vermont and Mississippi
– all have progressive income taxes, according to a study by the
Illinois Policy Institute. The fifth state on the slow-growth list
is Illinois.
The fastest growing states – Florida, Texas, Utah, Colorado and
Nevada – have no state income tax or a flat tax. In
October, a poll found 61% of Illinoisans considered moving out of
state in the past year, with state taxes being their top reason for
considering a move. Add Pritzker’s push to get $3.7 billion more out
of Illinois taxpayers through a progressive tax, then start taxing
retirees and watch the moving vans head for the borders.
Pritzker is seeking that greater taxing power through a referendum
Nov. 3, but Illinoisans who want to ensure fairness and economic
recovery should protect the current flat tax structure enshrined in
the Illinois Constitution. Denying state leaders the ability to tax
more is the only way to force them to face the state’s spending
problems.
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