Once taxpayers reach $1 million a year in earnings, their entire income would be taxed at a flat rate of 7.95 percent that’s different than other states with so-called “millionaires’ taxes,” where the top rate only applies to income above a certain level. From there, the rates increase to 4.95 percent for income between $100,000 and $250,000, 7.75 percent up to $500,000, and 7.85 percent up to $1 million. Governor Pritzker’s proposal would swap the flat tax for a graduated structure with six brackets, with rates starting at 4.75 percent on the first $10,000 of income and rising to 4.9 percent on income up to $100,000. That gives Illinois the third-highest effective rate on low-income families nationwide. As a result, middle- and low-income households must bear more of the cost of state services and pay a much higher share of their earnings in state and local taxes overall.Īs the chart shows, the bottom fifth of Illinois taxpayers, those making below $21,800, contribute 14.4 percent of their income in state and local taxes each year on average, compared to only 7.4 percent for the top 1 percent, or those with incomes above $537,400. Illinois, however, is one of eight states with a flat tax it taxes all income at 4.95 percent, regardless of income level. This helps balance the other major forms of state and local taxation - sales, property, and excise taxes - which, together, tend to fall hardest on those with the least income.
Most states with a personal income tax maintain a progressive structure that taxes higher income at higher rates. Known as the “Fair Tax” plan, it’s a wise course correction to the current flat tax system, which falls harder on working people than the wealthy and doesn’t support the state’s financial needs. Pritzker proposes to replace the state’s regressive flat tax system with a graduated rate structure, which would require a voter-approved constitutional amendment in 2020.
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