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 Illinois state Treasurer Michael Frerichs confirmed what many
believe would be a new possibility in Illinois if voters pass the progressive
income tax amendment: taxing retirees.
“One thing a progressive tax would do is make clear you can have graduated rates
when you are taxing retirement income,” he said while speaking at an event
hosted by the Des Plaines Chamber of Commerce. “And, I think that’s something
that’s worth discussion.”
According to the Daily Herald, Frerichs said he knows people who receive annual
pensions over $100,000 but pay no state income taxes. He said under the flat tax
there is no way to differentiate between retirees who take home hundreds of
thousands from those who get little.
Illinois voters on Nov. 3 will decide whether to remove the Illinois
Constitution’s flat tax protections and give state lawmakers greater power to
set tax rates.
The constitution’s drafters in 1970 included a flat tax guarantee in order to
ease voters’ fears that the state’s first income tax – which went into effect in
1969 – could be raised easily in Springfield. Flat taxes treat everyone the same
and make it harder for lawmakers to raise rates on everyone because voters can
hold them responsible. A graduated tax allows politicians to decide who should
be taxed how much and allows them to gradually increase taxes on smaller
segments of the population, eventually hitting the middle class where most
taxable income resides.
That is what happened in Connecticut, the only state in the past 30 years to
impose a progressive tax. Middle class taxes rose 13%, property taxes spiked
35%, poverty increased by 50%, more than 360,000 jobs were lost and the state
economy took a $10 billion hit. All that, and the state still failed to balance
its budget.
Gov. J.B. Pritzker has billed a progressive income tax as a way to increase
taxes on the rich without also increasing taxes on the poor and middle class.
But for a low-income resident making $12,400 a year, the tax would save them $6
while they are still taxed $1,800 a year.
The bigger problem is the tax’s impact on small businesses, which are just
starting the economic recovery from Pritzker’s COVID-19 lockdown orders. A
progressive tax would mean up to a 47% tax increase on over 100,000 small
businesses, the state’s most prolific jobs creators.
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Taxing retirement is not a new idea in Illinois.
Former Chicago Mayor Rahm Emanuel proposed taxing retirees with
incomes over $100,000 last year, while the Civic Committee of the
Commercial Club of Chicago proposed taxing retirement income over
$15,000 per year.
The Chicago Sun-Times editorial board even tied the two together,
writing “Pritzker’s progressive income tax plan can set the stage
for far greater tax fairness. Next, that tax should be expanded to
include the highest retirement incomes.”
Former Democratic gubernatorial candidate and former state Sen.
Daniel Biss also agreed with Frerichs’ position that a progressive
tax is needed in order for Illinois to tax retirement income.
While government leaders argue for more taxation, Illinoisans want
to move in the opposite direction. A 2019 poll by the Paul Simon
Public Policy Institute found 73% are against taxing retirement
incomes, while just 23% believe it is a good idea. Illinois is one
of three states that does not tax retirement income.
With no retirement tax, Illinois can more easily retain retired
workers without losing them to more tax-friendly states. Since 2013,
Illinoisans under age 65 have been the least likely to move out.
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.
If the Land of Lincoln changes tax structures and imposes a
progressive income tax that taxes retired workers on their income,
these trends can easily change. More Illinoisans over 65 will pack
and move to states with better climates and lower tax rates.
Illinois leaders who want to ensure fairness and economic recovery
should protect the current tax structure. Progressive taxation and
taxing retirement income will not fix the state’s spending problem,
but will send more jobs and retirees to other states.
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