Illinois state, local tax burden ranked highest in nation

Illinois residents pay more of their income toward state and local taxes than any other state’s residents. A progressive income tax proposal on the ballot in November would raise the state’s total tax burden by $3.7 billion.

Families in Illinois again carry a heavier tax load than anywhere else in the United States, but the survey showing that also finds a significant willingness by taxpayers to lighten that load by moving ­– or getting a tattoo.

Illinois residents pay higher effective local and state tax rates than anywhere else in the nation, according to WalletHub’s annual survey. The results were the same in 2019 and earlier, except that the household’s taxes have grown 11% since 2017.

Illinois families pay just shy of 15% of their income in total state and local taxes, based on the average U.S. household income of $60,602. That is $9,064 in state and local taxes, which are on top of federal taxes averaging $9,000.

While the results were similar last year, the interesting piece of the survey is what taxpayers are willing to do to avoid taxes: “37% of people would move to a different country for a tax-free future. 26% would get an ‘IRS’ tattoo and 19% would stop talking for 6 months.”

Tattoos and silence are amusing, but the willingness to leave the country should be a warning to Illinois politicians seeking to make the nation’s heaviest state and local tax burden even heavier. Gov. J.B. Pritzker is pushing voters on Nov. 3 to trust state lawmakers with greater power to tax by eliminating the Illinois Constitution’s flat income tax protection and replacing it with progressive tax rates.

Pritzker wants progressive rates, which he dubs the “fair tax,” to yield $3.7 billion from the state economy by taxing different income groups at different rates. The problems with his plan start with the fact that the state can’t tax someone if they leave the state, and the WalletHub survey is just the latest to show people will move to avoid higher taxes.

Illinois is already losing people, with six consecutive years of population decline. Leading the moves out of Illinois are those in their prime working years, meaning people currently paying taxes and with children who would have been Illinois’ next generation of taxpayers. Four of the five states with the slowest growth have progressive income taxes: Illinois is the fifth, so why would it impose a progressive tax, too?

Pritzker’s progressive tax initially hits the income groups already most likely to leave Illinois. Recent IRS data shows Illinoisans making $200,000 or more were twice as likely to leave compared with the typical resident. New York discovered how mobile wealth can be, as Gov. Andrew Cuomo lamented: “‘Tax the rich! Tax the rich! Tax the rich!’ We did. Now, God forbid, the rich leave.” Only New York lost a higher share of residents making $200,000 or more than did Illinois in tax year 2018.

Tax Illinois’ wealth more and watch the businesses and job creators head out.

That was what happened in the only state to impose a progressive tax in the past 30 years. While two other states repealed their progressive tax structures over that time, Connecticut imposed one and saw middle-class taxes rise 13%, poverty increase by 50%, 362,000 jobs go away and $10 billion evaporate from its economy.

Polls other than WalletHub’s also show people are willing to move to avoid taxes. In October, a poll found 61% of Illinoisans considered moving out of state in the past year, with state taxes being their top reason for considering a move. That was up from 51% in the same poll a year earlier, which echoed a poll in 2016 by the Paul Simon Public Policy Institute.

Illinois’ jobs growth is already sluggish and lags the national average. A progressive tax would cost Illinois 56,336 jobs – significantly more than the state gained in all of 2019 – and wreak havoc on the state economy, according to an analysis by the Illinois Policy Institute.

Plus, the progressive tax is intended to do next to nothing to solve the state’s biggest financial problem: public pension debt. Pritzker intends to use only $200 million a year from the new tax for pensions. The tax is about added spending, with Pritzker’s promises about how he would spend the money totaling $10 billion a year when the tax is only expected to yield $3.7 billion.

Of course, the current public health crisis and associated market slowdown is expected to blow an even larger hole in the budget.

Illinois Forward is a plan by the Illinois Policy Institute that in five years would balance the state budget, pay down debt and cut taxes. The first of three commonsense ideas calls for achieving what a progressive tax would not: dealing with runaway pension costs by amending the Illinois Constitution to curb the growth in future, not-yet-earned benefits.

Illinois’ high taxes and the WalletHub ranking are largely driven by the nation’s second-highest property taxes. The state imposed two historic income tax hikes in 2011 and again in 2017, then in 2019 imposed 20 new or increased taxes and fees – including doubling the state gasoline tax, which the WalletHub survey ranked as third-highest in the U.S.

All those tax hikes have failed to keep Illinois from having the second-worst fiscal health in the nation, but they have again made Illinois No. 1 for taking money from its residents.