Unhappy anniversary: Illinois income tax hike is 6 years old

Unhappy anniversary: Illinois income tax hike is 6 years old

Six years after state lawmakers made history by passing Illinois’ largest permanent income tax hike, residents in every tax bracket are leaving.

On July 6, 2017, the Illinois General Assembly voted to override then-Gov. Bruce Rauner’s veto of a record-setting permanent income tax hike. Personal income tax rates rose to 4.95% from 3.75% and corporate income taxes rose to 7% from 5.25%.

Illinois’ personal income tax is still 4.95%, but the corporate income tax is up to 9.5%, the third-highest in the nation. Is the state better off six years later?

Illinois lost residents of all incomes

From 2020-2021, Illinois lost residents in every tax bracket, the majority making $100,000 or more per year.

Some argue outmigration is driven by retirees seeking better weather or college students living out-of-state, but 64% of residents who left were between ages 26 and 54, the prime working years.

Polling showed the No. 1 reason residents consider leaving Illinois is high taxes.

Fewer residents, fewer tax dollars

Tax hike proponents argue the state benefits from added revenue. Outmigration, regardless of the cause, has the opposite effect: a smaller tax base.

State tax revenue projections for fiscal year 2023 dropped by more than $800 million, including an estimated $986 million drop in personal income taxes.

Illinoisans pay more for fewer services

Fewer residents mean each person’s share of Illinois’ $140 billion in pension debt grows. For example, Chicago’s pension debt rose 5% to $35.4 billion. The extra debt doesn’t mean improved schools, parks or other services.

Statewide, pension spending grew 584% during 22 years. Total spending only grew by 21% while budgets for some core services shrank by 20%.

Reforming the state’s pension system would eliminate billions in debt without taxing residents out of their homes.

It could also help avoid the next state income tax hike.

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