Reduce Reliance on Regressive Taxation

Illinois Has One of the Most Regressive Tax Systems in America

Illinois’s flat tax system, dependence on property taxes, and relatively high sales taxes combine for a tax structure that unfairly burdens the poor and the middle class, making it one of the most regressive taxing states in America.

“We must address the inequities caused by Illinois’s regressive tax system,” Senator Silverstein said.  “It is just unfair that the richest in Illinois are avoiding paying their fair share while the poorest and working families are hit the hardest.”

In a study completed two years ago, the Institute on Taxation and Economic Policy found that Illinois ranks as the fourth most regressive taxing state in the country.

The Institute found that the following are the ten most regressive taxing states:

 

As one can observe, Illinois taxes the poorest 20 percent of its residents at a higher level than almost every other state. In fact, it taxes the poorest among us 2.7 percent more than the national average, and is one of the few states to break the 13 percent mark.  And the tax burden on the poor is even worse today because of the increase in the State’s income tax rate.

Further, Illinois is above average in taxing the middle class, as well. The national average for the middle 60 percent of residents is 9.4 percent—a full 1.7 percent less than Illinois’s 11.1 percent tax on middle class families. Only Arkansas (11.2 percent), Hawaii (11.3 percent), and New York (11.2 percent) tax the middle class at higher rates than Illinois.

The only segment of the population that Illinois taxes at a lower level than the national average is the top one percent of earners: 4.9 percent of income in Illinois compared to 5.6 percent in the rest of the nation.

In addition to its damaging flat tax, another major factor that makes Illinois’s tax system so regressive is its dependence on property taxes:

“Today, local governments and schools in Illinois have been more dependent on property taxes than in other states.” Senator Silverstein points out.  “Illinois property taxes generated approximately 42 percent of local government revenue, which exceeded the national average of 30 percent.”

 

According to the Institute on Taxation and Economic Policy, Illinois’s property taxes as a share of income—which includes property taxes passed on as rent—is one of the highest in the country. Connecticut’s is higher for the very poor and the middle class; New York’s is higher for the very poor; Vermont is higher for the lower-middle and very-middle classes; New Hampshire and New Jersey are higher across the board. But, unlike Illinois, all those states have progressive income taxes which help mitigate the damage, except for New Hampshire, which has no income tax and a much lower sales-tax burden.

Plus, as we all have experienced, both property taxes and state income taxes have increased since this study.  So, while the ratios remain the same, the tax bite is even higher on the poor and working families of Illinois, while the wealthy continue to not pay their fair share.

Illinois Tax Code Features

Regressive Features
  • Personal income tax uses a flat rate
  • Over reliance on property taxes to fund schools
  • Majority of funding for local governments through property taxes
  • Comparatively low income tax exemptions
  • State sales tax base includes groceries, though taxed at a lower rate
Tax Changes Enacted in 2017
  • Flat tax rate increased from 3.75 percent rate to 5 percent

Senator Ira Silverstein believes our tax system must be reformed.  He proposes moving to a graduated income tax system and freezing property taxes for four years.

Under Senator Silverstein’s graduated income tax proposal, six level of taxation would be instituted with varying rates.  They would breakdown as: the lowest income level would be taxed at 3 percent, the second at 4 percent, the third at 5 percent, the fifth at 6 percent and the highest level at 7 percent.  The additional revenue gained from more fairly taxing our state’s wealthiest 5 percent of residents can then be utilized to contribute significantly more state money to local schools and governments, breaking Illinois’s dependence on property taxes.

By implementing his plan to freeze property taxes for four years and send more state money to local schools, the system will have rebalanced and corrected some of the regressive nature of Illinois taxes.