Increasing the Income Tax Rate
Release: February 16, 2021
Without new revenue available from the proposed Fair Tax, short-term borrowing, Federal Aid, and cutting some expenditures has allowed Illinois to hold on during the current fiscal year. But this is a short-term solution, and not a sustainable solution in tackling the long-term fiscal woes of Illinois. In our new short report, “Increasing the Income Tax Rate: One Method for Addressing Illinois’ Long-term Fiscal Problems” CTBA analyzes potential benefits of increasing the income tax rate, while ensuring that any increase in the income tax address the regressivity of a flat rate income tax structure through refundable tax credits.
Implementing the “Fair Tax” Will Help the Illinois Fiscal System
Release: October 1, 2020
On November 3rd, 2020, Illinois voters will have the opportunity to ratify the proposed amendment to the Illinois Constitution that would eliminate the mandate that state income taxes be assessed using only one flat rate.
This is a crucial moment for Illinois since it has historically been, and currently remains, one of the most unfair taxing states in the nation. From a textbook standpoint, an “unfair” tax system is a regressive tax system—that is, one that imposes a greater tax burden on low- and middle-income families than on affluent families, when tax burden is measured as a percentage of income. It is unfair because such a system fails to allocate tax burden in a manner that correlates with ability to pay, thereby worsening the substantial growth in income inequality that has occurred in the private sector over the last four decades. But building fairness into a state tax system is difficult, given that every tax—or fee for that matter—which is available to fund public services provided at the state or local level is regressive except for one: the income tax. The income tax is the only tax that can actually be designed to comport with ability to pay and hence create some tax fairness, because it is the only tax that can be designed to assess higher tax rates on higher levels of income, and lower rates on lower levels of income.
Unfortunately, Article IX, Section 3 of the Illinois Constitution mandates that the state income tax be imposed at one flat rate across all levels of income. Hence, Illinois is constitutionally prohibited from utilizing the income tax to play the essential tax policy role of offsetting the natural regressivity of every other tax and fee imposed at either the state or local level. In fact, Illinois’ inability to build some fairness into its tax system through implementation of a graduated rate income tax has played a major role in driving the ongoing deficits in the state’s General Fund, while also hampering private sector economic growth. The good news is a genuine opportunity for meaningful reform of the Illinois income tax now exists. That is because on June 5, 2019, Governor Pritzker signed Public Act 101-0008 (“P.A. 101-0008”) into law. If implemented, this legislation will create a new, graduated rate income tax structure, frequently referred to as the “Fair Tax” by proponents, to replace the state’s current flat rate income tax.
To learn more about how the Fair Tax not only ties income tax burden to ability to pay, but also raises new revenue in a manner that will effectively help eliminate some of the long-term structural flaws that have consistently made Illinois’ overall tax system one of the most unfair and poorly performing in the nation, please read the new CTBA Report, “Implementing the “Fair Tax” Will Help the Illinois Fiscal System Respond Better to the Modern Economy While Promoting Tax Fairness.”
Impact on Illinois' Structural Deficit
Release: October 21, 2019
The state of Illinois faces a significant structural deficit into the future. The report highlights the nature of the structural deficit and identifies two key causes: the state’s historically flawed tax policy and the plan devised for repayment of Illinois’ pension debt. CTBA proposes both the adoption of the Fair Tax and a reamortization of the pension debt as described in the report titled: Addressing Illinois’ Pension Debt Crisis With Reamortization. Doing so would allow the State to ensure full funding for the Evidence Based Funding Formula while also improving the status of Illinois’ public employee pension system and eliminating the State’s structural deficit by 2042.
How a graduated rate income tax would help reduce after-tax income inequality in Illinois
Release: May 22, 2019
Since 1979, the nation has seen a rapid and significant increase in income inequality between low- and middle-income Americans on the one hand, and the wealthiest one percent on the other. Over that time span, the bottom 99 percent of American households saw their incomes increase by an average of just 14 percent after inflation. Meanwhile, the wealthiest one percent saw their inflation-adjusted incomes balloon by 175 percent on average—or fully 12.5 times more than the income growth realized by everyone else.
Press Release: A Graduated Rate Income Tax Would Help Reduce After-Tax Income Inequality in Illinois
Release: May 22, 2019
The Center for Tax and Budget Accountability (CTBA) released a report, How a Graduated Rate Income Tax Would Help Reduce After-Tax Income Inequality in Illinois, which shows that the implementation of a graduated rate income tax can reduce the regressivity of Illinois’ state and local tax system while lessening after-tax income inequality, which imposes lower tax rates on lower levels of income and higher rates on higher levels of income,