Warning to Illinois: The progressive income tax is a poverty trap

March 5, 2019

New report reveals how the last state to pass a progressive income tax hurt its poor, harmed its economy

CHICAGO (March 5, 2019) – As Illinois lawmakers begin discussions this week on the progressive income tax, new research indicates they should heed warning signs from the last state to switch from a flat income tax to a progressive income tax: Connecticut.

While Connecticut lawmakers promised the progressive income tax would only tax the rich, a new Illinois Policy Institute report indicates the typical Connecticut family suffered both income tax and property tax hikes during the past two decades. Since switching from a flat tax to a progressive income tax in 1996, Connecticut households have seen their income tax rates rise by 13 percent and their property tax burdens rise by 35 percent. At the same time, poverty rates in Connecticut increased 47 percent.

“The evidence is clear: Illinois can’t afford to suffer the same fate as Connecticut. Instead of creating more equality, the progressive income tax hiked taxes on the middle class, reduced job opportunities and deteriorated economic and living conditions for the most vulnerable households around the poverty line,” said Orphe Divounguy, chief economist at the Illinois Policy Institute.

In Connecticut, the new tax structure also failed to improve its financial outlook. The state’s economy lost 360,000 jobs and continues to experience chronic budget deficits.

“Gov. J.B. Pritzker’s argument for a progressive income tax is not a magic pill for Illinois: it relies on the same myths of middle-class income tax relief, lower property taxes and shoring up the state’s finances. The solution for Illinois is to limit the growth in spending to what taxpayers can afford,” Divounguy said.

Highlights from the report:

  • In the past 30 years, only Connecticut moved from a flat tax to a progressive income tax. The state adopted its new tax structure in 1996, phasing in the progressive income tax over three years, with two brackets beginning at a 3 percent and 4.5 percent.
  • Today, Connecticut has seven income tax rates: 3 percent, 5.5 percent, 6 percent, 6.5 percent, 6.9 and 6.99 percent. They range from households making less than $20,000 to more than $1 million.
  • The typical Connecticut household has seen its income tax rates increase more than 13 percent since 1999. In the same time, property tax burdens have risen by more than 35 percent.
  • The policy change cost Connecticut’s economy $10 billion and more than 360,000 jobs within a decade of being enacted.
  • Higher and more progressive income tax schedules did not improve Connecticut’s finances. Connecticut has run state budget deficits in 12 of the past 15 years and is holding more debt per capita than almost any other state.
  • Income inequality did not improve in Connecticut. Instead, poverty increased after the introduction of the progressive income tax. Before changing its tax structure, Connecticut had a poverty rate of 5.5 percent, but once the state implemented the progressive income tax, the poverty rate soared 47 percent to 8.1 percent. This happened while poverty rates across the country were falling.
  • Illinoisans most likely to be harmed by a progressive income tax include minority groups, those without a college degree, and those who live in rural areas. Vulnerable communities could include: Alexander, Cass, Scott and Pulaski counties and Calumet, Cicero, Thornton, Rich Township and Berwyn around Chicago.

To view the full report, ”How Connecticut’s ‘tax on the rich’ ended in middle-class tax hikes, lost jobs and more poverty,” visit Illin.is/connecticut.