3 things to know about Pat Quinn’s ‘millionaire tax’

Former Gov. Pat Quinn claims a millionaire tax would offer Illinoisans property tax relief, but it won’t work without pension reform.

Former Gov. Pat Quinn is pushing a proposal to impose a graduated income tax surcharge on millionaires, claiming it would finally deliver property tax relief to Illinois homeowners.

But adding taxes while ignoring why government demands ever more would be an expensive failure. Plus, does anyone believe state lawmakers have the restraint to stop at “millionaires”?

Quinn’s idea would hike the tax rate for individuals making more than $1 million annually by 3%, increasing income taxes by $4.5 billion annually, according to proponents. They claim the revenue could be deposited into the state’s property tax relief fund and then handed back to homeowners.

But history suggests an income tax hike won’t go to property tax relief.

In 2011, the state enacted the largest income tax hike in state history. It also reduced the share of income tax revenue distributed to local governments.

The money could have been used to offset the pressure on rising property taxes. Instead, the state kept 100% of the income tax increase and spent it.

Quinn argues a previous advisory referendum signals broad support and will help lawmakers put a constitutional amendment on the 2026 ballot. That question will come with clear language on rate, threshold and spending purpose.

Despite its attempt at populist appeal, the plan is fundamentally flawed. Here are three things you should know about Quinn’s proposal.

1. Changing Illinois’ flat tax code opens the door for lawmakers to increase taxes on more populations, including retirees

Voters statewide rejected a progressive tax in 2020 because it hands state lawmakers power to set tax rates at whatever they want on whomever they want. That includes retirees who are not taxed by the state on their retirement income.

Even Illinois State Treasurer Michael Frerichs confirmed a progressive tax opens the door to a retirement tax. “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 a 2020 event hosted by the Des Plaines Chamber of Commerce.

After state lawmakers have the power to tax one income group, nothing stops them from adding another, and another and another. Dividing and conquering avoids the political backlash of raising everyone’s flat tax.

2. Destroying the flat tax would eliminate one of Illinois’ only economic saving graces

The flat income tax is one of the few saving graces helping Illinois remain moderately competitive. By any other measure, Illinois’ tax burden ranks among the worst. Illinois has one of the highest total effective tax rates in the nation and the highest in the Midwest:

• Flat income tax rate: 4.95% ranks 13th best in the nation, according to the Tax Foundation.
• Corporate income tax rate: 9.5%, the third-highest rate in the nation.
• State sales tax rate: 6.25%, but local rates can hit 10.5% as Chicago is about to see.
• Gasoline taxes: No. 2 in the nation at 84 cents per gallon.
• Effective property tax rate: 1.83% of a home’s value per year, highest in the U.S.

High taxes are the No. 1 issue facing the state, according to recent polls. They are a primary reason the state has lost 420,678 residents since 2020, further hampering the state’s economic growth prospects.

Adding more taxes only further damages Illinois’ economy. And because income taxes are even worse than property taxes, swapping property taxes for income taxes is not a good idea.

3. Raising other taxes can’t provide true property tax relief

If lawmakers are serious about providing property tax relief and protecting Illinois’ economic future, they can do so without raising taxes. They just have to address the root cause: overpromised pensions.

The key driver of Illinois’ highest in the nation property taxes is soaring public pension obligations. Local governments and school districts rely heavily on property tax revenues to meet these long-term obligations, with $1-in-$5 from municipal property taxes outside of Chicago going to fund local police and fire retirements. Despite taxpayers handing over billions to the pension funds, the state is still over $5 billion short this year of what actuaries say is necessary to pay for state pensions.

Raising an income tax surcharge on millionaires won’t change pension formulas or reduce future mandated payouts, which drive up taxes. A reduction provided by this kind of tax scheme would hardly cancel out the 16% increases homeowners in Chicago saw on their tax bills this year, or the increases they will continue to see without structural reform.

Property tax relief sounds appealing. But the solution to ballooning property taxes isn’t simply more taxation: it’s smart fiscal reform that curbs growth in pension costs.