Illinois flat rate tax
September 7, 2013 § Leave a comment
Illinois’ competitive flat-rate income tax is protected in the state’s constitution. But there is a growing movement to increase income taxes in Illinois by swapping out the state’s flat-rate income tax for a progressive tax.
The progressive tax plan is being sold as a tax on the rich, but it would hike tax rates on everyone who earns more than $5,000.
Most progressive income tax states tax middle and low incomes at a higher rate than Illinois, which is currently 5%, and is legally required to decrease to 3.75% in 2015. Consider the definition of “rich” in the following states:
- Georgia has six income tax brackets, the highest being 6% on incomes of more than $7,000.
- Louisiana has three income tax brackets, the highest being 6% on incomes of more than $50,000.
- Mississippi has three income tax brackets, the highest being 5% on incomes of more than $10,000.
- Missouri has 10 income tax brackets, the highest being 6% on incomes of more than $9,000.
- Montana has seven income tax brackets, the highest being 6.9% on incomes of more than $16,400.
- Nebraska has four income tax brackets, the highest being 6.84% on income of more than $27,000.
- Virginia has four income tax brackets, the highest being 5.75% on income a of more than $17,000.
States with progressive income taxes are also less competitive than low tax states. Nine states with the highest personal income tax rates lost $90 billion in adjusted gross income between 2000 and 2010. Nine states with no personal income tax gained $113 billion over the same period. That’s why North Carolina recently abandoned its progressive income tax for a flat-rate income tax.
Illinois lost more than $20 billion between 2000 and 2010. Newer migration data will reflect accelerated income losses as a result of the state’s 2011 tax hike that raised the personal income tax rate by 67% and corporate income taxes by 47%.
Eliminating one of Illinois’ few competitive advantages will not reverse this trend.
Rather than increase tax rates, Springfield legislators would do better to emulate what the states with the most in-migration are doing: lower taxes, less regulation and less government spending.