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Lawmakers raised the personal income tax rate by 67 percent and the corporate income tax rate by 46 percent in a late night, lame-duck session in January 2011. This legislation also reinstated the estate tax and suspended the net operating loss deductions for corporations.
The Illinois Policy Institute’s report “Leaving Illinois: An Exodus of People and Money” showed that between 1991 and 2009, Illinois lost more than 1.2 million residents to other states—more than one resident every eight minutes. This tax increase will only send more people to the exits.
The 2011 tax hike is the largest income tax increase in state history. This increase is rivaled in size and scope only by the tax grab that created the state income tax in August 1969. In the first fiscal year following the creation of the state income tax, new revenue totaled $4.1 billion (adjusted to real 2010 dollars). In fiscal year 2012—the first, full fiscal year following Illinois’s latest tax hike—new income tax revenue is anticipated at $6.5 billion. Thus, the revenue generated by the 2011 tax increase is 59 percent higher than the revenue from the very first income tax.Fact Finder: 2011 Tax Hike Is the Largest in Illinois History
Despite population growth since the income tax was first created, the January 2011 tax hike also remains the largest tax hike in Illinois history on a per capita basis. As Graphic 3 (see the full report) shows, the new revenue for fiscal year 2012 is projected to be nearly 40 percent higher than fiscal year 1971 on a per capita basis.
Rather than implementing necessary spending reforms to address the state’s budget deficit, the lame-duck legislature further burdened Illinois taxpayers. As the “Leaving Illinois” study shows, Illinois is already losing taxpayers to 40 of the other 49 states and every border state. This tax hike will make the state less attractive to current and prospective residents.
Responsible government is possible in Illinois. The Illinois budget can be balanced without tax hike revenue, as demonstrated in the Institute’s “Budget Solutions 2012,” a line-by-line alternative to the governor’s budget. The 2011 tax hike should be repealed as soon as possible, and significant spending reforms should be implemented.
The state cannot keep taking money from the pockets of struggling Illinois families. Lowering the tax burden will make Illinois a more appealing destination for the entrepreneurs, businesses and workers needed to help the economy flourish. Responsible spending and lower taxes are the first steps to getting Illinois back on the path to prosperity.
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