Graduated income tax vote could be state's biggest race. Here's what you need to know.

  • YouTube screen shots show a video in favor of the proposed progressive state income tax and one against it.

    YouTube screen shots show a video in favor of the proposed progressive state income tax and one against it.

Updated 9/24/2020 11:13 AM

In a campaign that features no candidates but more than $70 million in combined contributions, the vote to allow changes to the state's income tax structure could wind up being the biggest Illinois race on November's ballot.

Fueled by a more than $50 million donation from Gov. J.B. Pritzker, the Vote Yes for Fairness campaign is urging voters to support changing the state's constitution to remove a requirement for a flat tax on income.


Meanwhile, billionaire hedge fund manager Ken Griffin donated $20 million this month to The Coalition to Stop the Proposed Tax Hike Amendment to fight the proposed constitutional change.

The constitutional amendment would pave the way for adopting a graduated tax, where income is taxed at rates that rise by income level.

Supporters argue a graduated income tax plan proposed during Pritzker's gubernatorial campaign and approved by the Democratic-controlled state legislature would reduce or maintain income taxes for 97% of Illinois residents while charging higher rates to the wealthiest 3% in Illinois and generating $3.6 billion in additional annual revenue for the state.

Opponents contend changing the tax rate structure would cause wealthy Illinois residents to leave the state and stymie small business growth.

The actual tax rates are not part of the ballot question, which feeds opponents' claims that a victory will embolden lawmakers to raise taxes for other groups or tax retirement benefits, although those powers already rest with the legislature and would not be changed.

Most states and the federal government have graduated income taxes.

Effect on business

If the graduated income tax is approved, the corporate income tax rate would increase to 7.99% from 7%, matching the highest individual income rate.

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The state legislature's Commission on Government Forecasting and Accountability predicts this change will generate $350 million of the $3.6 billion in additional annual income tax revenue the new tax structure is anticipated to provide.

Most small business owners claim the profits of their business operations in their individual income taxes. Any small business owner whose personal annual income exceeds $250,000 would likely pay more under the graduated income tax.

"As Illinois families and businesses face an unprecedented economic and jobs crisis due to a pandemic, this is the worst possible time to raise taxes," said Lissa Druss, a spokeswoman for the coalition opposing the amendment.

However, small business owners with incomes below $250,000 would see tax rates lower than the current 4.95% flat tax, giving them a break during lean years, supporters of the graduated tax argue.


"This is not going to put a burden on small businesses by putting more money in the pockets of consumers," said Quentin Fulks, head of Vote Yes for Fairness.

Opponents also say state income tax reductions for lower-earning taxpayers could be negated by last year's doubling of the motor fuel tax and $50 increase in most vehicle registrations.

Taxing retirement

Illinois is one of the few states not taxing retirement benefits, and voting in favor of the amendment will not have any effect on that policy.

"This is one of the biggest lies out there," said Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability. "Nothing in this amendment creates new legal authority to tax retirement income that doesn't exist today."

That hasn't stopped opponents of the amendment from arguing the Democratic-controlled legislature would try to tax retirement benefits such as pension income, citing a statement Illinois Treasurer Michael Frerichs, a Democrat, made earlier this summer saying it's worth the discussion to "have graduated rates when you are taxing retirement income." Frerichs was speaking about the possibility of taxing retirement benefits at higher earning levels.

Bills that would allow retirement benefits to be taxed are filed in the General Assembly nearly every session and by members of both political parties. They rarely get any traction.

The Illinois chapter of the AARP, an advocacy group for people older than 50 that adamantly opposes all taxes on senior benefits, supports Illinois' graduated income tax proposal. The group called it a "step in the right direction" to fixing the state's financial and debt problems.

Changing the tax rates

The chief argument opponents of the graduated tax plan cite is trusting the Democratic-controlled legislature not to change the tax rates that have already been approved.

"We are actually voting on giving the politicians unyielding power to set tax rates at whatever they want and set how many brackets they want whenever they want," Druss said. "This amendment gives Springfield politicians more power to hike our rates to fix their problems."

But Fulks counters the amendment has no bearing on the legislature's power to change the income tax rate, which it has done thrice since 2010, increasing it to 5% from 2011 through 2014, dropping it to 3.75% from 2015 to June 30, 2017, then increasing it again to the current 4.95%.

"It changes nothing at all for legislators. They already have the ability to change rates," Fulks said. "What it does do is give them the power to impose higher income tax rates on higher earners."

How the vote works

To pass, the proposal needs either 60% support among those voting directly on the ballot initiative or more than 50% of those voting in the election.

Four of the past five constitutional amendment changes in Illinois have been approved by voters.

How the rates work

Under the graduated income tax plan that passed the House Revenue Committee, tax rates rise in steps, with the first $10,000 in income taxed at 4.75%, the next $90,000 taxed at 4.90%, and the next $150,000 taxed at 4.95% ­-- the current rate under the flat tax.

Any income over $250,000 triggers a tax rate of 7.75%. The rate climbs to 7.85% for income over $350,000 for single filers and $500,000 for couples.

The biggest tax increase would be for single filers with income over $750,000 and married couples with incomes over $1 million. Their tax rate would be 7.99%, and unlike people in lower income brackets, they would pay that flat rate on all of their income.

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