Tax question on November ballot could open door for retirement tax
Implementing the “millionaire” tax would give lawmakers the power to tax retirement income. Every state with a progressive tax also taxes retirement income.
A non-binding referendum on the Nov. 5 ballot asking whether the state should adopt a “millionaire” tax to support property tax relief could open the door for lawmakers to begin taxing Illinoisans’ retirement income.
To institute a millionaire tax, Illinois lawmakers and voters would have to scrap the state’s flat income tax guarantee in the Illinois Constitution and approve a progressive tax structure, allowing income to be taxed at varying rates. Once this is allowed, Illinois lawmakers could expand it to several kinds of income taxes, including retirement income.
Illinois Treasurer Mike Frerichs said as much when discussing Gov. J.B. Pritzker’s 2020 “fair tax” referendum, which would have replaced Illinois’ current flat tax with a progressive tax.
“One thing a progressive tax would do is make clear you can have graduated rates when you are taxing retirement income,” Frerichs said while speaking at an event hosted by the Des Plaines Chamber of Commerce. “And, I think that’s something that’s worth discussion.”
The Illinois Policy Institute found all 32 states with a progressive tax also have retirement taxes.
Proponents of the “millionaire” tax claim the progressive policy will provide real property tax relief for Illinoisans, despite estimates showing the savings will fall at least $2 billion short of covering the state’s current costs.
In reality, the referendum is a ploy state lawmakers are using to justify the elimination of the state’s flat income tax and grant themselves the power to set new and higher taxes, including on retirees, whenever they decide they don’t have enough money.
Taxing retirement income is not a new idea in Illinois. Former Chicago Mayor Rahm Emanuel proposed taxing retirees with incomes over $100,000 in 2019, while the Civic Committee of the Commercial Club of Chicago proposed taxing retirement income over $15,000 per year.
The state constitution’s drafters in 1970 included a flat tax guarantee in order to ease voters’ fears that the state’s first income tax – which went into effect in 1969 – could be raised easily by Springfield politicians. Flat taxes treat everyone the same and make it harder for lawmakers to raise rates because everyone is impacted and voters can hold them responsible.
A graduated tax allows politicians to decide who should be taxed how much and allows them to gradually increase taxes on smaller segments of the population, eventually hitting the middle class where most taxable income resides.
It happened in Connecticut, the only state in over 30 years to impose a progressive tax. Middle class taxes rose 13%, property taxes spiked 35%, poverty increased by 50%, more than 360,000 jobs were lost and the state economy took a $10 billion hit. All that, and the state still failed to balance its budget.
The Illinois Policy Institute’s Lincoln Poll in 2023 found more than 1-in-3 voters over the age of 65 thought high taxes were the biggest issue facing our state.
If the Land of Lincoln adopts the “millionaire” tax and imposes a progressive income tax that taxes retired workers on their income, we can expect more Illinoisans over 65 to pack up and move to states with better climates and lower tax rates.
*Paid for by Vote No on Illinois Tax Hikes*