House representatives voted on Thursday to override Gov. Bruce Rauner’s veto, ushering in higher income taxes along with a bit of fiscal certainty the state hasn’t had since 2015.
Personal income tax rates will increase from 3.75 percent to 4.95 percent, a 32 percent increase. And the corporate tax will rise to 7 percent from 5.25 percent – a rise of roughly 33 percent.
Illinois, which has a flat tax rate, will now have the fourth highest flat income tax rate, ranking just below Utah, which has a flat tax rate of 5 percent. North Carolina, at 5.75 percent, and Massachusetts, at 5.1 percent, lead the group of flat income tax states.
Annually, the personal income tax hike will bring in around $4.3 billion, according to Ralph Martire, executive director of the bipartisan Center for Tax and Budget Accountability. The corporate income tax would bring in around $460 million per year.
Jackie Perlman, a tax analyst at The Tax Institute at H&R Block, found that a single taxpayer making $50,000 a year would pay around $287 more in 2017 compared to 2017 and $574 more from 2016 to 2018. A married couple making $100,000 annually would pay around $574 more from 2016 to 2017 – a 16 percent increase. The increase between 2016 and 2018 would be around $1,148.
Laurence Msall, president of the Civic Federation, said that although the budget doesn’t solve all of the state’s long term financial problems it ends the “experiment” of operating without a budget.
“This is far from a panacea, but it is an improvement,” Msall said.
Jared Labell, executive director of Taxpayers United of America, compared fixing the state’s financial problems, as well as the impact the income tax hike could have, to a game of “Jenga.” The game of stacked pieces relies on a sound infrastructure to keep from toppling which is not unlike a state government, he said.
“The tax increase isn’t a solution to (the state’s financial problems),” Labell said. “The impact of this hike would be felt much sooner than the budget impasse. There would be more economic stagnation and more people will leave the state, and the more people who leave the state, the worse it will be for those who stay.”
Compared to other states, Illinois ranks 33rd in terms of its average income tax rates for the nation. The increase would move it to 17th place, according to tax-rates.org.
Robert Otter, budget director for the Center for Tax and Budget Accountability, said the tax hike would give the state revenue it “desperately needs.”
“Last year, the government spent roughly $6 billion more than it took in,” Otter said. “The lack of a state budget means the government can’t fund services that people want. This will allow the state to stabilize services like health care, human services, education and public safety, but we need more than this to pay the backlog.”
Here’s a list of the states with highest average income tax rates
California – 7.75Oregon – 7.73Minnesota – 7.53Maine – 7.23Vermont – 7.18Hawaii – 7.01New York – 6.05Tennessee – 6Wisconsin – 5.94North Carolina – 5.75Connecticut –5.4Massachusetts – 5.2Idaho – 5New Hampshire – 5Utah – 5Illinois – 4.95Iowa – 4.92Rhode Island – 4.83West Virginia – 4.8Delaware – 4.71