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ILLINOIS
RETIREES WOULD PAY $2,482 IN STATE INCOME TAXES IF “FAIR TAX” TARGETS
THEM
Illinois Policy Institute/
Bryce Hill
Members
of Pritzker’s administration, advisors and lawmakers have suggested a
progressive income tax should tax retirement income in Illinois. |
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 There
are 2 million Illinoisans of retirement age, and currently the state does not
tax their retirement income. But there is significant reason to believe the
“fair tax” amendment to the Illinois Constitution would bring retirement taxes
if passed.
If Illinois begins taxing retirement income under the proposed progressive
income tax schedule, an Illinoisan earning the average Social Security and
retirement income would pay $2,482 in income taxes.
Illinoisans on average receive $19,999 in annual Social Security benefits and
$30,950 in retirement income from sources such as 401Ks or IRAs. That brings
total retirement income to $50,949. Currently, none of that income is taxed.
However, a progressive income tax could mean that these retirees will eventually
pay taxes. According to proposed progressive income tax rates already passed by
state lawmakers, that would take $2,482 in taxes from the average retiree
annually.
On Oct. 5, three Cook County retirees joined the Illinois
Policy Institute in filing a lawsuit over the inaccurate language being
presented to voters on the ballot. Among other things, the lawsuit points out
that misleading statements mailed to all voters by the Illinois Secretary of
State, “will induce retirees into voting to impose on themselves a tax on
retirement income.”
The lawsuit points to comments by Illinois State Treasurer Michael Frerichs in
June stating that “[o]ne thing a progressive tax would do is make clear you can
have graduated rates when you are taxing retirement income, and, I think that’s
something that’s worth discussion.”
Frerichs planned a press event Oct. 6 to clarify his earlier comments, but
canceled 12 minutes before it was to begin, without providing a reason for the
cancelation. Others have been eager to fill in the reason: Gov. J.B. Pritzker
wants the damage caused by Frerichs’ earlier admission minimized.
All 32 states with a progressive income tax also tax some form of retirement
income, including Connecticut, the last state to enact a progressive income tax.
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Frerichs is the most recent “fair tax” backer to
make the connection between progressive tax powers and taxing
retirees, but not the first. Pritzker’s head of the Illinois
Department of Revenue previously proposed a bill to tax retirees and
several prominent amendment backers have admitted passing the
progressive tax is the first step to taxing retirement income in
Illinois.
Attempts to deny progressive taxes are linked to
retirement taxes at this late stage, days before the Nov. 3
election, likely stem from widespread public opposition to taxing
retirement income. A 2019 poll from the Paul Simon Public Policy
Institute found 73% of Illinoisans somewhat or strongly opposed
eliminating the retirement exemption, while only 23% supported or
somewhat supported the change. Crain’s Chicago Business columnist
Greg Hinz recently asked, “Is Pritzker’s graduated tax plan in
trouble?” He pointed to Frerichs’ comments as one reason the answer
might be “yes.”
Progressive tax powers make it inherently easier to raise taxes on
everyone by giving politicians the ability to raise taxes on small
segments of the population, one at a time, rather than facing
backlash from all taxpayers at once. This amendment would enable
Springfield to begin taxing retirement income above a certain level
at varying rates, gradually lowering income brackets to raise
additional revenue by slowly adding more Social Security and pension
income to the tax base. The amendment also grants lawmakers the
ability to tax retirement income at a different rate than regular
income, which could allow for rates to rise over time so the hikes
generate less unified public opposition.
Illinois residents need to know that passing the progressive income
tax amendment would fail to deliver the benefits its proponents
claim, as well as make it more likely Springfield will tax
retirement income in the future. With Illinois’ economic growth
already being held back by persistent population loss, the state can
hardly afford to drive away even more residents as it works to
recover from a pandemic.
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