State Graduated Income Tax Proposal Clears Key Hurdle In Illinois Senate
Democrats in the Illinois Senate Wednesday gave their full-throated support to a proposed constitutional amendment to replace the state’s flat income tax, handing Gov. JB Pritzker a key victory on his biggest legislative priority.
The Senate’s 40-19 vote on the amendment to institute a graduated income tax fell along party lines. Democrats say the plan’s estimated $3.3 billion net infusion is essential to steadying the state’s chronically shaky finances.
Additionally, proponents said the existing tax structure is regressive and unfair because it imposes the same 4.95% income tax rate on Illinois billionaires as it does on the lowest of wage earners.
“If you’re saying the flat tax is a good idea, you are protecting the uber rich, not the middle class,” said state Sen. Don Harmon, D-Oak Park, the amendment’s chief Senate sponsor.
The amendment was packaged and passed with three other pieces of legislation that would take effect only if the graduated income tax is eventually ratified by voters in November 2020.
One measure sets new income tax rates. Another would eliminate Illinois’ $305 million estate tax. The final one would freeze local property tax rates imposed by school districts if certain state school-funding thresholds are met.
None of the legislative chamber’s 19 Republicans embraced the graduated income tax amendment, which now moves to the Democratic-led House. GOP critics warned it would target job creators and worsen the state’s troubling loss of population as residents flee to lower-taxed states.
“This is not something that’s good for us,” said Senate Minority Leader Bill Brady, R-Bloomington. “In order to compete to recruit and retain jobs, we need to have stability, not uncertainty.”
Brady predicted voters would not ratify the constitutional amendment in next year’s election.
The state’s 4.95% tax rate has been in place since 2017, when it jumped from 3.75%. Under the marginal graduated income tax rate structure approved by the Senate, different portions of Illinoisans’ incomes would be taxed at different rates.
For example, a single filer who makes $200,000 a year would pay a 4.75% tax rate on the first $10,000 they earn; 4.9% on income between $10,001 and $100,000; and 4.95% on the rest.
The tax rates for individuals would range from 4.75% up to 7.99% for people who make more than $750,000 a year. There’s a different tax rate scale for married couples who file jointly.
Individual income taxes are set up with similar, graduated rates in 32 states, ranging between 0.33% to 13.3%, according to the state Commission on Government Forecasting and Accountability. Illinois is among 11 states with flat income tax rates.
Illinois’ first income tax stood at 2.5% back in 1969, and the flat tax structure was memorialized in the state’s 1970 constitution. Imposing a sliding tax rate scale, as the federal government now has, requires modifying the state constitution.
With Senate passage, the measure now moves to the House, where Democrats control 74 out of the 118 seats. Putting a constitutional amendment revision on the ballot requires a supermajority in both legislative chambers, meaning 71 votes will be needed in the House.
House Speaker Michael Madigan, D-Chicago, already has gone on record as supporting the plan.
If it wins House passage later this month, the proposed amendment would go to voters during the high-turnout November 2020 presidential election, where voters would have to approve it. Under the constitution, three-fifths of those voting on the question or a majority of those voting in the election is required for ratification.
Once lawmakers approved the constitutional change that allows for a graduated income tax structure, a series of companion measures passed in rapid-fire succession, including one bill that establishes specific income tax rates.
The legislation containing the specific rates passed the Senate 36-22 without support from four swing-district Democrats. State Sen. Jennifer Bertino-Tarrant, D-Shorewood; Sen. Tom Cullerton, D-Villa Park; and Sen. Suzy Glowiak, D-Western Springs, all voted “no.” Another Democrat, Sen. Rachelle Crowe, D-Glen Carbon, did not vote on the measure.
All were “yes” votes on the constitutional amendment.
Elimination of the state’s $305 million estate tax, which is imposed on the value of an estate that someone inherits, has been a long-sought-after goal of Republicans representing agricultural areas, where valuable tracts of farmland pass from generation to generation. In the 33-24 vote on this measure, however, only Democrats were “yes” votes.
Under existing law, no estate tax is imposed on an estate valued at $4 million or less. If an estate’s value exceeds that threshold, Illinois imposes a 40% estate tax on whatever amount exceeds $4 million.
And the property tax component passed Wednesday, valued by supporters at $365 million, would impose a freeze on school districts’ tax rates. But it carries a caveat: Rates would be frozen only so long as Illinois fully funds school district breakfast and lunch programs and busing costs and invests $350 million annually in overall school funding.
Homeowners’ property tax bills hinge only partly on the tax rates imposed by local taxing bodies. An equally significant factor in the property-tax equation that can contribute to higher taxes is a property’s assessed value, which this legislation doesn’t address.