Tax Day 2020: ‘Fair tax’ opens door to retirement tax, local income taxes, double taxation next year

July 14, 2020

July 15 is this year’s Tax Day, the deadline to file income taxes nationwide


Tax Day 2020: ‘Fair tax’ opens door to retirement tax, local income taxes, double taxation next year
July 15 is this year’s Tax Day, the deadline to file income taxes nationwide

CHICAGO (July 14, 2020) – Tomorrow is Tax Day nationwide, the delayed deadline to file income taxes in the wake of the COVID-19 crisis and widespread economic uncertainty. With more than 1 in 7 Illinoisans still out of work and the prospect of the progressive income tax come November, Tax Day 2021 could look incredibly different.Illinoisans are facing a third income tax hike in 10 years if voters choose to amend the constitution to change the way the state taxes income. But the progressive income tax vote this November isn’t just about a state income tax hike. Gov. J.B. Pritzker’s “fair tax” would change the Illinois Constitution to also grant state lawmakers greater taxing powers that make it easier to impose other new taxes.

Under a progressive income tax, Illinoisans could also see:

A statewide retirement tax

  • Illinois State Treasurer Michael Frerichs is the most recent proponent of the progressive income tax to admit it opens the door to additional taxation, saying at a Chamber of Commerce event in Des Plaines last month: “One 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’ statement is accurate, as a progressive tax would let politicians decide who should be taxed how much.
  • Across the nation, 32 states have a progressive income tax system. They all tax retirement income. Nearly 3 in 4 Illinoisans oppose taxing retirement income, according to a 2019 poll from the Paul Simon Public Policy Institute.
  • Connecticut, the last state to pass a progressive income tax, has been taxing retirement income for the past 10 years. The rate of residents older than 65 moving out is now more than double the rate for prime working-age adults. Since 2011, IRS data shows Illinois has been able to retain residents of this age group better than every other group.

Local income taxes

  • The original language of the “fair tax” amendment explicitly banned local income taxes in Illinois. Lawmakers removed that protection before passing the plan to voters.
  • Chicago lawmakers have backed city income taxes in the past, and under the amendment, the city could implement similar graduated tax rates to New York City, with a bottom rate of 3.078% for individuals earning less than $12,000 and a top local tax rate of 3.876% for individuals earning more than $50,000 per year.

Double taxation and special surcharges

  • The Illinois Constitution currently prohibits taxing the same $1 earned more than once, but that protection would vanish if voters approve Pritzker’s “fair tax” amendment.
  • Double or even triple taxation would be allowed were the constitution’s flat tax protections removed, thanks to language swapped into the proposal shortly before state lawmakers placed the tax hike on the Nov. 3 ballot.
  • This could take the form of a special income tax levied on top of normal rates for public safety or pensions, for example.

Adam Schuster, senior budget and tax research director at the nonpartisan Illinois Policy Institute, offered the following statement:

“In a state where families already pay more of their income toward state and local taxes than residents of any other state, Gov. J.B. Pritzker’s tax hike will extend far beyond the wealthy few, unfairly hitting seniors, small businesses and working families with a higher tax bill year after year.

“Illinois is currently one of just three states with an income tax that exempts all retirement income from taxation, a saving grace for retirees who already shoulder the nation’s second-highest property taxes among other government-imposed costs. Nine states do not collect taxes on general income from salaries and wages. Illinois leaders who want to ensure tax fairness and economic recovery should protect the current tax structure. Progressive taxation and taxing retirement income will not fix the state’s spending problem. It will send more jobs and retirees to other states.”

To read more about how a progressive income tax hike opens the door to additional taxation in Illinois, visit:

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