Illinois Graduated Income Tax Plan Headed To Voters In 2020

The Illinois House made Memorial Day memorable for Gov. JB Pritzker as it voted to put a constitutional amendment on next year’s ballot that could get rid of the state’s flat 4.95% income tax.

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Monday’s 73-44 roll call, assembled only with Democratic support, handed Pritzker a huge political victory. Replacing Illinois’ existing income tax structure with a system of sliding rates based on income was a key campaign pledge when Pritzker ran for governor.

“This is the culmination of a significant effort over several years to do what’s right for middle-class families,” the governor told reporters in his statehouse office after Monday afternoon’s vote.

“This system we’ve put forward is the same system most other states have, and most other states are doing better than Illinois,” the governor said.

In order for the income tax overhaul to take effect, voters would have to approve the constitutional amendment at the ballot box in November 2020. And state lawmakers still must finalize the rates in the new graduated tax structure, with a current proposal having those top out at 7.99 percent for the wealthiest wage earners.

If all that happens, Illinois’ shaky finances would be shored up with an annual infusion of new revenues exceeding $3 billion under Pritzker’s plan.

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Part of that new windfall could go toward property tax relief, a new child-care tax credit, increased state funding for local governments and a repeal of the state estate tax.

But those measures require House action. The Illinois Senate bundled them together and voted them out alongside the tax amendment earlier this month. However, their fate in the House remained unclear.

During Monday’s nearly 3 1/2-hour debate, supporters of the amendment argued Illinois’ existing flat tax is regressive and unfair, all because the same 4.95% income tax rate gets imposed on Illinois billionaires just as it does on the lowest wage earners.

They also said it would bring an end to years of rudderless financial policy that have left education and social services underfunded and billions of dollars of state bills unpaid.

“This is reform. This is what we all come here to do: Identify problems, find solutions,” said Rep. Robert Martwick, D-Chicago, the amendment’s chief House sponsor. “This is the solution for Illinois going forward.”

House passage required 71 votes. Seventy-three House Democrats voted to adopt the measure, with Rep. Andre Thapedi, D-Chicago, the only caucus member not signing on. He wound up not voting on the question.

None of the House’s 44 Republicans voted for the amendment.

One by one, limited by a five-minute timer, most of the GOP critics stood to condemn the plan, saying it would pave the way to higher taxes and further accelerate an out-of-state exodus of employers and tax-weary residents.

“Have we shown fiscal discipline? Have we been demonstrating a track record of success to taxpayers that they could have confidence that we would show restraint? That we wouldn’t make promises that we can’t afford to meet?” Rep. Tom Demmer, R-Dixon, asked from the House floor. “We haven’t earned that trust from taxpayers.”

State Rep. Allen Skillicorn, R-East Dundee, ramped up the anti-amendment rhetoric from his side of the aisle even higher, insisting Illinois’ financial woes are self-inflicted and that tax policy is driven by a Democratic ruling class out of touch with average voters.

“Illinois has a spending problem, not a revenue problem,” Skillicorn said. “The supporters of this tax hike are politicians, lobbyists and other political parasites, not the hard-working people of Illinois.”

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.

These so-called “marginal” 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.

During floor debate, Martwick attempted to translate how those tax rates would affect a middle-income family. He said a family of four with $61,000 in annual household income would save $271 annually under the graduated income tax plan Pritzker favors compared to what that family is taxed now.

Monday’s passage of the tax amendment didn’t include a floor vote on the income tax rates prescribed by the state Senate. Martwick predicted that could come sometime before Friday, the day when the General Assembly is scheduled to adjourn its spring session, though he left himself some wiggle room.

“I believe the intention is…there will potentially be a vote on that before we adjourn,” Martwick said.

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.

Under that constitution, voters now will have the final say on the tax amendment.

But just because an amendment gets on the ballot, it’s not a guarantee voters will go along.

Since 1970, there have been 22 attempts to amend the Illinois constitution, and 14 times they have passed, including most recently in 2016. That measure aimed to require state transportation funds be used only for transportation purposes.

The last time a constitutional amendment was put before voters and failed was 2012. That involved a measure pushed by Democratic House Speaker Michael Madigan to require state and local governing bodies vote by three-fifths majorities in order to sweeten pension benefits for their public employees.

Dave McKinney and Tony Arnold cover state politics and government for WBEZ. Follow them @davemckinney and @tonyjarnold.

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May 27, 2019 at 05:16PM

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