Illinois lawmakers fail to pass millionaires tax, path to progressive income tax

None of the three proposed amendments to the Illinois Constitution that would have repealed or endangered the state’s flat income tax protection advanced during this year’s legislative session.

While lawmakers passed a state budget with more than $800 million in new revenue, dangerous tax proposals fizzled out.

Three proposed amendments to the Illinois Constitution would have repealed the flat income tax protection and dramatically expanded the state’s authority to raise taxes. The measures would have allowed the state to impose taxes on a variety of income types and amounts.

Senate Joint Resolution Constitutional Amendment 4 and House Joint Resolution Constitutional Amendment 16 would have eliminated the state constitutional requirement that income be taxed at one flat rate. That would have allowed lawmakers to impose as many tax brackets — and rates — as they wanted.

In 2020, the last time a measure like that was advanced, lawmakers proposed six new tax brackets with rates ranging from 4.75% to 7.99%. They expected to increase income taxes by $3.7 billion. The proposal failed at the polls.

House Joint Resolution Constitutional Amendment 21 would have taken a slightly different approach, adding a 3% surcharge on income above $1 million. But like the other proposals, it opened the door for taxes on new types of income while beginning to dismantle the flat-tax guardrail. The proposal passed out of committee April 21 and could have gotten a full House vote any time prior to the May 3 deadline for constitutional amendments. It was not called for a full House vote.

Supporters branded the effort a “millionaires tax,” but in reality it would have punished some 22,000 Illinois small businesses with a huge increase in their marginal state income tax rate and created a top tax rate for them of nearly 50.3% factoring in all state and federal income taxes. Research has shown that an increase in the top marginal tax rate is associated with a decrease in entrepreneur hiring activity and lower wages for their employees.

Had lawmakers — and subsequently voters — approved any of these amendments, more tax hikes would have been likely in the future, especially if Illinois’ flat tax protection were removed.

First, lawmakers would have gained authority to create multiple tax brackets with escalating marginal rates. Even if such legislation initially targeted only the highest earners, nothing would prevent future expansions. Illinois has repeatedly enacted “temporary” income tax increases that became permanent. Broader taxing authority makes it easier to expand higher rates to smaller income thresholds over time.

Second, eliminating the flat-tax requirement would allow lawmakers to treat different types of income differently. When legislators tried to pass a graduated income tax in 2020, state Treasurer Michael Frerichs admitted the measure would make a retirement income tax — currently banned in Illinois — more likely.

Fortunately, Illinois lawmakers could not generate enough support for these harmful policies in the General Assembly. The next time such measures could come to Illinois voters would be the November 2028 general election.