Illinois Taxes: Are These the Good Previous Days?
Some time ago I spoke to a man who had recently retired from a government job in the northern suburbs. He had moved just over the border into Wisconsin to have more country living and escape the high taxes in Illinois.
However, after settling there, he found that his state pension would be taxed. Had he stayed in Illinois it would have been left alone. He was angry.
I declined to tell him that he hadn’t done his homework. These nettle details are easy to miss, and we all have other things to distract us.
But it is true. It is easy and justifiable to criticize state and local taxes in Illinois and respond as an individual or company by at least threatening to leave. You need to know what you are getting into.
A good, user-friendly place to start this inquiry is on the Kiplinger finance website, which released an interactive map last week to allow you to compare tax rates by state. She obtained her information from government agencies, industry associations and the non-partisan tax foundation.
In a result that would come as no surprise, Kiplinger ranked Illinois one of the least tax-friendly states. The property and sales taxes cost the residents dearly. However, when you look at details, things get mixed up.
Take our eastern neighbor, Indiana, for example. Billboards in the southern suburbs tell us it is a low tax haven and personal experience confirms this. Urban and suburban residents have crossed the state line for cigarettes and gasoline for decades. Add in the fireworks, guns, and gambling business and you have what equates to an open economy that benefits from the rules in Illinois.
Hoosier State has a lower income tax rate than Illinois, but there is a catch. Each county has its own income tax rate. Add the two together and the difference will be reduced, or in the case of Lake County, Indiana, almost eliminated. Illinois has no county income taxes.
Moving to Indiana will likely save you real estate and sales taxes. However, if you’re still working in Chicago or the suburbs and bought a longer commute to work, is it worth it?
For most wage earners, the Illinois flat tax rate of 4.95 percent is cheap compared to the sliding scales in Wisconsin and Iowa, two states that also had the status of “least tax-friendly” in the Kiplinger ranking. The website found that many Wisconsin residents are in the 6.27 percent tax bracket. This is not an argument against the proposed Illinois tiered income tax – it is something most states already have. It’s just a reminder that lawmakers have yet to decide who pays.
However, there is one group for whom these scenarios are fundamentally different. They are retirees who are the best protected class of taxpayers under Illinois law. Of the states that levy income tax, only three do not affect retirement income from pensions, 401 (k) s, IRAs, and social security. It’s Mississippi, Tennessee, and old high-tax Illinois that, from that perspective, looks like a Midwestern haven for retirees who don’t mind winter.
It’s a big ticket item. Analysis by the State Comptroller’s Office found that exclusion from retirement income cost Illinois $ 2.3 billion in fiscal 2015. Groups from various industries such as the Civic Federation, the Civic Committee of the Commercial Club, and the Center for Tax and Budget Accountability have called for retirement on taxable income.
However, your CEOs and employees do not have to stand in front of the voters. I suspect Governor JB Pritzker knows that all his fortune will not save his political career if he applies for a retirement tax. His greater concern is that voters will approve the incremental income tax change over the next year and keep legislature promises that it will fall mostly on wealthy people and cut taxes on many others. Some will wonder if they can believe promises made by the same political class that created the fiscal troubles by cutting public pensions.
The vote will take place in November 2020. At this point, people might be in a grumpy mood. In Chicago, Mayor Lori Lightfoot will have no choice but to combine a property tax hike, other revenue increases, borrowing cuts, and some blinding effects to close a projected deficit of more than $ 800 million. And that’s next to a possible teachers strike. At the state level, the financial mash-up will deteriorate in slow motion once it becomes clear that revenue from marijuana sales and the expansion of gambling is a long time coming and is lower than expected.
It is enough to upset even retirees. Maybe the guy who fled higher taxes in Wisconsin was close to the game.