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 On July 6, 2017, the Illinois General Assembly voted to
override then-Gov. Bruce Rauner’s veto of a record-setting permanent income tax
hike. Personal income tax rates rose 32%, to 4.95% from 3.75%, while corporate
income taxes rose 33%, to 7% from 5.25%.
Just three years later, Springfield politicians want permission from voters to
again raise taxes. Illinoisans will have the opportunity on Nov. 3 to approve
or deny a constitutional amendment allowing Gov. J.B. Pritzker’s $3.6 billion
“fair tax” hike. The amendment would eliminate the flat tax protection enshrined
in the 1970 state constitution in favor of a progressive tax system, which makes
it easier to raise taxes by letting lawmakers charge different rates to
different residents, potentially including retirees, based on income.
Voters should be wary of granting state politicians enhanced taxing powers based
on the damage from the 2017 tax increase: the state economy has suffered while
debt burdens continue to grow.
More income tax revenue won’t improve Illinois’ worst-in-the-nation state
finances. After the 2017 income tax hike, Illinois’ total tax burden rose from
10th highest in the nation to at least sixth highest, based on the most recent
comprehensive data available.
This estimate is based on the U.S. Census Bureau’s Annual
Survey of State and Local Government Finances. The most recent year of data
available is the 2017 survey, which provides data for Illinois state fiscal year
2017. Fiscal year 2017 ended June 30, 2017, just before the income tax hike. The
ranking holds all other state tax burdens equal and shows what Illinois’ tax
ranking would have been in 2017 had the higher income tax rates been in effect.
An updated ranking for 2018 will likely be available sometime during summer
2020, according to the Census Bureau. Illinois may ultimately rank even higher
than estimated, because the trend among states in recent years has been to
reduce income taxes rather than raise them as Illinois has done. According to
the Tax Foundation, five states cut corporate income taxes in 2019, and six
states cut individual income taxes. No state raised income taxes.
The 2017 tax hike has not translated into more stable state finances or better
services for state residents. The state’s credit rating is still the nation’s
worst and just one notch above junk status, according to two major credit rating
firms. Also, over $1.2 billion of the more than $5 billion in additional revenue
has gone to servicing state pension and bond debt, roughly a quarter of the new
money raised. [ to
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Other spending categories that saw substantial
growth from fiscal year 2017 to 2021 include K-12 education and
human services. Human services had been drastically cut during the
two years the state operated without a budget. Education accounted
for 23% and social service for 20% of the new tax hike dollar
spending increases.
However, growth in education spending stopped with
the latest budget signed by Pritzker, which increased overall
spending by $2.4 billion year over year but held education flat,
which amounts to a cut when inflation is factored in. That budget
includes a $6 billion deficit and $5 billion in potential new
borrowing amid lower revenues stemming from the COVID-19 crisis. But
state finances had been deteriorating prior to the pandemic.
Illinois has a spending problem, not a revenue problem. It’s one of
the highest-taxed states in the nation, but still among the most
indebted. More tax increases will ultimately make this problem
worse, not better, by driving away the residents and businesses that
generate healthy revenue growth in the long term through economic
growth.
The state has already lost population for six years running, driven
primarily by adults in their prime working years leaving for other
states. The most common reason residents give for wanting to leave
is the high tax burden, according to public opinion polling
conducted for NPR and the University of Illinois-Springfield.
Inefficient spending of existing resources and tax hikes on an
already overtaxed population contributed to poor results during the
past decade. Illinois ranked 46th in the nation for jobs growth in
2019 and saw the largest labor force decline among states, despite
the strong and growing national economy prior to the coronavirus
pandemic. Overall, in the decade after the Great Recession, Illinois
ranked 38th among states for private sector job creation.
Pritzker’s “fair tax” hike would only make these existing problems
worse, taxing over 100,000 small businesses up to 47% more after
they were already damaged by the COVID-19 mandates. Economists and
other public policy experts nearly all agree you should not hike
taxes during a recession.
On Nov. 3, state residents will have the rare opportunity to
directly decide how Illinois should move forward. They can give
Springfield politicians more power to repeat past mistakes with
higher taxes and more wasteful spending. Or taxpayers can say they
already pay enough and it’s time for lawmakers to get spending and
debt under control with structural reforms.
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