Twelve Things to Know About the “Fair Tax for Illinois”

By Jared Walczak, Senior Policy Analyst with the TaxFoundation

Key Findings:

  • New Illinois Gov. J.B. Pritzker (D) has proposed sweeping changes to Illinois’ tax code, advocating a constitutional amendment to permit a graduated-rate income tax and proposing a new rate and bracket structure.
  • Under the proposal, corporate income would be taxed at 10.45 percent, the third-highest rate in the nation, while pass-through business income would be taxed at a top rate of 9.45 percent, the fourth highest such rate nationwide.
  • The proposal diverges sharply from ideal—or even typical—income tax structure. It omits inflation indexing (resulting in “bracket creep”), creates a marriage penalty, and includes a recapture provision which subjects the entirety of a taxpayer’s income to the top marginal rate once they reach that bracket.
  • The neighboring states of Indiana, Iowa, Kentucky, and Missouri have all cut income taxes in recent years, while Illinois may be headed in the opposite direction.
  • The governor’s proposed tax rates are merely notional; should voters permit a graduated-rate income tax, there are compelling reasons to believe that rates may climb even higher, and that more taxpayers would be subjected to higher rates.
  • Were the proposal implemented, Illinois is projected to decline from 36th to 48th on the State Business Tax Climate Index, which measures tax structure.

Read the full Fiscal Fact analysis here.