October 23, 2020
In advance of Election Day 2020, the Civic Federation today released an educational issue brief on a proposed ballot initiative to amend the Illinois Constitution to allow for a graduated income tax. While the Federation recently took a position against the tax amendment, the report is based on blog posts, research and other material compiled before that policy decision. As discussed in the report’s introduction, the information included therein is intended to provide voters with the information needed to make their own decisions on the question.
“Income taxes are an inherently complex, nuanced issue, and the proposed amendment would significantly change how a number of Illinois individuals and businesses pay income taxes,” said Civic Federation President Laurence Msall. “With this brief, the Federation is pleased to offer Illinois voters objective, straightforward analysis of the opportunities, challenges and other considerations for amending the Illinois tax code in this manner—while also working to address some of the outstanding questions surrounding both Illinois’ current income tax structure and the ballot proposal.”
The report is presented in five substantive sections, outlining the history of Illinois’ flat income tax, the proposed graduated tax plan, individual income tax structures in other selected states, how the tax burden shift would affect taxpayers in select scenarios* and widely accepted tax policy principles and considerations.
The section exploring potential changes in tax burden compares the estimated income tax burden for six taxpayer scenarios under the current Illinois flat rate income tax, the proposed graduated income tax and then also compares the income tax burden in the states of Wisconsin, Iowa, Indiana, Missouri, New York and California. The sample tax bills demonstrate that the proposed Illinois graduated income tax would shift tax burden to higher income individuals and families, who would pay more in income taxes. At the same time, lower, middle and upper middle income taxpayers would see some reduction in their tax burden.
Following detailed explanation of the tax principles of revenue adequacy, equity, collectability/simplicity and economic efficiency, the analysis explores how they come into play when comparing Illinois’ existing flat tax structure with the graduated tax structure that would go into effect if the constitutional amendment is approved by voters in November. Arguments from proponents and opponents of the proposal are presented throughout.
“The issue in front of voters this election is highly controversial, and the decision will have a long-lasting impact on the State’s finances and its taxpayers,” said Msall. “Rather than relying on emotion or TV ads, the Federation’s hope is that all Illinoisans are able to access independent analysis, including this issue brief, in formulating their opinion or position on the proposal.”
READ THE BLOG POSTS ON WHICH THIS ISSUE BRIEF IS BASED
*The Civic Federation extends its thanks to the Taxpayers’ Federation of Illinois for providing permission to reproduce TFI’s sample taxpayer analyses beginning on page 23 of the report.