Each year, the Tax Foundation honors state legislators, executives, and other individuals with its Outstanding Achievement in State Tax Reform award. As the name suggests, the honoree's accomplishments...
- The Tax Policy Blog
- Who Would Pay a Higher Illinois Income Tax?
Who Would Pay a Higher Illinois Income Tax?
This morning we released a new report by my colleague Liz Malm, on how a proposed Illinois tax increase would affect small businesses and job creation.
For several months, there has been buzz in Illinois political circles about a progressive income tax, timed to prevent the scheduled drop in the state's current flat income tax from 5% to 3.75% at the end of this year. Last week, House Speaker Michael Madigan put out a plan that would impose a top rate of 8% on income over $1 million. Other leading plans have top rates as high as 11%, increasing taxes on all taxpayers.
Here are some key findings of our new report:
- 61 percent of employers in Illinois are pass-through entities (individual proprietors, partnerships, and S corporations), meaning they pay business taxes through the individual income tax. Implementing a graduated, or progressive, rate structure would increase taxes on many of these businesses.
- Pass-through employers employ 38 percent of Illinois employees. This varies widely by industry, with the highest concentrated in the construction sector (78% of employers and 65% of employees); professional, scientific, and technical services (77% of employers and 53% of employees); agriculture, forestry, fishing, and hunting (73% of employers and 47% of employees); administrative and support and waste management services (70% of employers and 55% of employees); real estate and rental and leasing services (70% of employers and 54% of employees); and transportation and warehousing (68% of employers and 30% of employees).
- Pass-throughs tend to be smaller in size, with the majority of pass-through employers employing less than 10 people.
- The Illinois economy is underperforming in comparison to other states in the region and the country as a whole. Experts express caution over using taxes as a solution to the state’s large and rising pension debt.
While most people think taxes on "millionaires" only affect wealthy heirs with trust funds, the reality is that most Illinois employers, employing a large proportion of Illinois workers, pay taxes through the individual tax code. Increasing their taxes directly affects job creation and economic growth.
Illinois already has one of the highest state-local tax burdens in the country, and while it has fiscal challenges, it should try to address them without destroying one of the best features of its tax code: a low, simple income tax.
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.