Illinois: Low Tax?

May 3, 2010

Eric Zorn at the Chicago Tribune concludes that “Illinois is a low-tax state.” His evidence (after strangely inferring that Illinois’s $5 billion deficit is preferable to Indiana’s $309 million deficit, not that those deficit numbers mean anything*), is that Illinois ranks 30th in state-local tax burdens and has been around there for decades. On other rankings, Illinois isn’t always among the highest.

All that is true, but others say there’s more to it. “Stan” in the comments notes that 30th is middle of the road, not low. Alex Larou in the comments also points out that the state’s mismatch between revenue and spending, particularly on pensions, is creating pressure for tax increases. Greg Blankenship notes that if you include federal taxes, the total tax burden paid by Illinois residents puts them 14th.

The best feature of Illinois’s tax system is its personal income tax: a flat 3%, the lowest flat rate in the country. A flat rate with few deductions and credits stabilizes revenue flows from year to year, and it helps minimize the extent to which individuals and non-corporate businesses make economic decisions because of taxes instead of economic fundamentals.

The flat income tax balances out some of the state’s less competitive feature, such as high sales and property taxes. And as Illinois tackles its budget problems, it should keep competitive pressures in mind.

More on Illinois here.

* – State budget deficits represent revenue projections minus estimated spending. One state’s number is comparable to another’s because different states calculate them different ways, assuming different spending growth figures. Many states are also overly optimistic with their revenue projections; the net result is that shortfalls open up during the year.


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