Illinoisans pay highest tax burden in nation
A new study shows Illinois is the least tax-friendly state in the nation. A family making the median national income in the median valued home pays 16.8% of their income to taxes, more than any other state.
Illinois has a reputation for high taxes, but another study is again backing that up.
In Illinois, a married couple with one child making the national median household income in the national median valued home pays an estimated $13,894 in taxes, or 16.8% of their income.
Both figures are the highest of any state. The same family would pay less than 10% of their income to taxes in 30 other states.
MoneyGeek estimated tax burdens for each state using the median national income and home values, then used graded tax systems based on the size of taxes in comparison to income.
Three of the five least tax-friendly states had declining populations in 2021, including Illinois with the second-longest streak of population decline in the country at eight years.
Conversely, the five tax-friendliest states in the study with “A” grades all saw a growth in population during 2021. Four of those five had populations grow at or above the national average.
A different estimate from WalletHub puts Illinois’ effective tax rate at 15%. Either way, both estimates highlight Illinois as the worst state in the nation for taxpayers.
The main culprit behind high taxes in Illinois is pensions, which take up 26% of Illinois’ budget – the most of any state. Easing the burden on taxpayers is impossible without pension reform.
A “hold harmless” pension reform plan developed by the Illinois Policy Institute would save the state $2.4 billion in the first year and more than $50 billion by 2045. It fully eliminates pension debt in that time while preserving all promised benefits to public employees for work already performed.
The plan raises retirement ages for workers younger than 45, and ties retirement increases to inflation instead of compounding 3% annual increases, among other reforms.
The result is a pension system where the state can afford to pay every retiree instead of the current system that’s less than 40% funded. The plan could only take effect if approved by voters in a constitutional amendment.