I recently returned from Illinois, where I had an opportunity to share our new research into the impact of income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. changes on employers in Illinois.
The first plans we covered, from Representative Jakobsson and the Center on Tax and Budget Accountability (CTBA), had top rates of 9 and 11 percent. Then House Speaker Michael Madigan (D) offered a plan for a 3 percent millionaire tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. . While I was there, Senator Don Harmon (D) released a rate schedule for a plan with a top rate of 6.9 percent. And in his budget address today, Governor Quinn called for an extension of the temporary 5 percent income tax, which is currently scheduled to drop to 3.75 percent in 2015.
With so many plans, ranging from full progressive income tax schedules to high-earner taxes to different flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. rates, I thought it could be helpful to offer a comparison. The chart below shows what the marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. is for each plan at each income level, up to $1,000,000.
There are still some unanswered questions that make analysis of these plans difficult. It’s not clear if any of them will include inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. -indexing, or how they will address married couples filing jointly. There hasn’t been any revenue scoring of these proposals, either.
Chart: Comparing 2015 Rate Structures of Illinois Income Tax Proposals, Marginal Tax Rates by Income Level
Read more on Illinois here.
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