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Update: A Tax Compromise Offered in Illinois

1 min readBy: Nicole Kaeding

Earlier this month I highlighted a potential 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. compromise brewing in Illinois. State senate Republicans and Democrats released a proposal to increase Illinois’s individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. , expand the state’s Earned Income Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. , and create a statewide sugary beverage tax, among other things. The Illinois Senate Revenue Committee will hear the proposal tomorrow, but it appears that the proposal could be changing, making the plan, and Illinois, even less competitive in the process.

Under the original proposal, the individual income tax would increase from 3.75 to 4.95 percent, but according to the Northwest Herald, the proposal change would likely increase the rate from 3.75 to 5.25 percent, an increase of 40 percent.

This change, if approved, would make Illinois even less competitive. According to the State Business Tax Climate Index, Illinois would fall from 23rd best tax climate to 28th best. Full results are available below.

Current Proposal #1 Proposal #2
Total 23rd 27th 28th
Corporate 26th 43rd 43rd
Individual 10th 10th 12th