Illinois flat tax among most unfair in U.S.

Prairie State has eighth-worst tax system in nation, says new study on equality

Gov. Bruce Rauner has defended the flat income tax and has suggested reducing it. (One Illinois/Ted Cox)

Gov. Bruce Rauner has defended the flat income tax and has suggested reducing it. (One Illinois/Ted Cox)

By Ted Cox

Illinois’s flat income tax helps rank it among the most unequal state tax systems in the country, according to a new nationwide study.

The Institute on Taxation and Economic Policy found in a study released this month that Illinois ranks as the eighth-worst state in the nation for equality in taxes.

Labeling the Illinois tax system “regressive,” the study points out that the poorest state residents, the fifth making less than $22,000, pay an average of 14.4 percent of their family income on state and local taxes, including sales taxes. By contrast, the top 1 percent, making more than $537,000, pay 7.4 percent of their family income on taxes.

What’s more, the study points out that the middle fifth, making between $41,000 and $64,000, pays slightly more, at 12.6 percent of family income, than the groups either below (up to $41,000, at 12.4 percent) or above (up to $110,000, 11.8 percent).

The same trend applies to property taxes, with the poorest fifth devoting 6 percent of their family income to housing taxes, while the middle fifth pay 5 percent. All others average about 4.5 percent, but with the top 1 percent paying the lowest share of family income, 2.1 percent.

Driving the state’s regressive tax system, according to the study, are the flat income-tax rate of 4.95 percent, while groceries are included in the sales tax — albeit at a slightly lower level on state taxes. Illinois also does not tax retirement income, and does not offer a property-tax “circuit breaker” for low-income homeowners.

It does, however, offer the Earned Income Tax Credit and a non-refundable tax credit on property taxes, while other tax policies such as the personal exemption also serve to ease inequities, so that the Illinois income tax actually increases by percentage of family income through all tax brackets as income rises.

Republican Gov. Bruce Rauner and Democratic challenger J.B. Pritzker have clashed on tax policy, with Pritzker advocating a progressive income tax, without setting specific bracket levels, while Rauner repeatedly insists a progressive tax would increase taxes on the middle class, a position the Better Government Association has labeled “false.” Rauner has actually advocated rolling back the income tax while freezing property taxes, without specifying how that would help the state pay its bills or fund education.

The states found to have more unfair tax systems are Washington, Texas, Florida, South Dakota, Nevada, Tennessee, and Pennsylvania, with Pennsylvania ranking just behind Illinois.

Rich Miller’s Capitol Fax cited the study this week.