In Fiscal Year (FY) 2011, Illinois collected $59.5 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Illinois taxpayer can afford this level of taxation.
As shown in the charts below, Illinois’s state and local tax burden (tax collections divided by personal income) was the fifteenth highest in the nation for FY 2011 at 11 percent—or 2.9 percent above the national average of 10.5 percent. Illinois’s tax burden has grown significantly over time by 76 percent to 11 percent in FY 2011 from 6.1 percent in FY 1950.
Illinois’s higher-than-average tax burden is driven by a high property tax burden (4.4percent, 10th highest), corporate income tax burden (0.55 percent, 7th highest), and all other taxes (2.2 percent, 21st highest). On the other hand, other taxes are lower than average including the sales tax (1.6 percent, 40th highest), and the individual income tax (2 percent, 32nd highest).
However, it should be noted that the individual income tax burden is at its highest level ever thanks to a “temporary” 66 percent increase in the flat, statutory tax rate to 5 percent from 3 percent in 2011. Thanks to the tax rate increase, Illinois taxpayers endured a 28 percent increase in their individual income tax burden to 2 percent in 2011 from 1.6 percent in 2010.
Unfortunately, despite the partial sunset provisions included in the tax increase, the Tax Foundation reports in a new study on the Illinois tax hikes that “some policymakers may consider doubling down on bad tax policy.” In particular, “one proposal that has emerged in recent months is to consider a graduated, or progressive, income tax that would impose many additional rates on individual income.”
If this plan is enacted, Illinois taxpayers can expect their individual income tax burden to continuously rise as taxpayers are bumped into higher tax brackets and pay higher tax rates. Adding insult to injury, states that have already adopted progressive income taxes have paid a high economic price.
For example, Maine has a very progressive income tax with a top tax rate as high as 8.5 percent until recently reduced to 7.95 percent. As a consequence, I have found that Maine’s income tax has resulted in fewer and poorer “high-income” taxpayers when compared against the national average and neighboring New Hampshire—which does not have an individual income tax.
Illinois policymakers should heed the economic lessons from other states and let the scheduled phase-out of the higher individual income tax rate and corporate income tax rate proceed as planned.
J. Scott Moody has nearly 20 years experience as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.