Plan to Replace Illinois' Flat Tax Continues to Move Through the Legislature
Two constitutional amendments that would eliminate the state’s flat tax and replace it with a progressive tax are moving through the legislative process. These constitutional amendments must pass both chambers with a three-fourths vote in order to be put on the fall election ballot.
HJRCA 59 (sponsored by Rep. Christian Mitchell) and SJRCA 1 (Sen. Don Harmon) both provide for a constitutional change to how Illinois taxes its citizens. If they pass both chambers, they will be put on the ballot and must get a majority of voter support.
While the constitutional amendments do not set actual rates, two accompanying bills were also introduced that lay out a proposed tax structure should the state revert to a progressive tax.
HB 689 (Rep. Lou Lang) and SB 518 (Sen. Toi Hutchinson) would set tax rates as follows: married couples or head of household would pay 3.5 percent for income of $200,000 or less; 3.75 percent on income between $200,000 and $750,000; 8.75 percent on income between $750,000 and $1.5 million and 9.57 percent on income over $1.5 million.
The rates for all other taxpayers would be 3.5 percent for income up to $100,000; 3.75 percent on income between $100,000 and $500,000; 8.75 percent on income between $500,000 and $1 million and 9.75 percent on income above $1 million.
NFIB/Illinois has several concerns about changing our constitution and moving to a progressive tax.
First, our constitution currently deters efforts to shift the tax burden to businesses by not allowing a huge spread between individual and corporate taxes.
Also, the tax rates highlighted in HB 689 and SB 518 are very likely to change and would easily allow lawmakers to significantly hike certain tax brackets while leaving others alone.
Finally, proponents claim the new tax structure would bring in an additional $1.9 billion. Yet, by all accounts the state would need several billion more just to pay off bills and make a dent in the pension obligations. This further bolsters the argument the tax rates will likely change if the constitutional amendment passes.
This is a significant change in tax policy for our state, yet lawmakers have not passed any economic reforms that small business owners desperately need.
Giving lawmakers more money without reforms is what got Illinois into the current fiscal mess.
‘Millionaire Tax’ Falls in the House
Meanwhile, Speaker Michael Madigan’s proposed constitutional amendment to impose a surtax on high-income earners failed to get the 71 votes needed to pass.
HJRCA 26 proposes an additional 3% tax on income over $1 million, which would, in essence, bring a progressive tax to Illinois despite our constitution’s flat tax requirement.
Speaker Madigan has attempted to pass this amendment in the past but failed. Instead, the speaker put an advisory referendum on the 2014 asking voters if these higher wage earners should pay more in income taxes. The referendum passed with over 60% support in most counties. The speaker, by design, has used this referendum to try to convince lawmakers to support the amendment.
The additional money raised from the increased tax, estimated at $1 billion, would be directed to the state’s education system.
