Illinois Moves to Raise Taxes on Richest by Scrapping Flat Tax

(Bloomberg) -- Illinois lawmakers advanced Governor J.B. Pritzker’s plan to stabilize the state’s finances by filing a bill to amend the state constitution to do away with its flat income tax, a step toward raising income levies on the highest earners.

The legislation seeks to end the requirement that all taxpayers pay the same rate regardless of income and would provide an influx of revenue for a government whose pension-fund shortfall and budget deficits have left it with a near junk-bond rating.

If such a constitutional amendment is approved by three-fifths of the House and the Senate, it would go to voters for approval in the next general election. Pritzker’s plan is to raise the current income levy of 4.95 percent on those making more than $250,000, which the administration says represents only 3 percent of taxpayers.

“It doesn’t make sense that I pay the same rate as a teacher or a first responder,” Pritzker, a Democrat and the billionaire heir to the Hyatt hotel empire, said during a press conference in Springfield on Tuesday. “Today we are taking a first step, a next step to fix that unfairness.”

Pritzker’s step would usher in a progressive income tax like those already in place in a majority of U.S. states. People making more than $1 million, about 0.3 percent of filers, would face a 7.95 percent tax rate, with slightly lower ones for those making more than $250,000. The changes, along with a hike in the property tax credit and a new child credit, would cause 97 percent of residents’ bills to stay the same or go down while raising $3.4 billion of revenue, according to the administration estimates.

“The fiscal challenges that we face have been decades in the making,’’ Pritzker said. “It’s an important plan for us to move this state past our fiscal challenges so that we can grow jobs and grow the economy.”

Illinois last moved to increase income levies in July 2017, when lawmakers, including members of his own party, overrode then-Republican Governor Bruce Rauner’s veto to enact a spending plan with higher taxes and end a record budget impasse that had put Illinois on the brink of becoming the first U.S. state to lose its investment grade rating.

Pritzker, who took office in January, said his administration welcomes debate and negotiation about the proposal. He said he’s advocating for a system that is "more fair to the middle class.” The alternative would be to increase levies on everyone or cut discretionary spending on items like schools, colleges and social services by 15 percent, according to Pritzker, who challenged opponents to come up with a better idea.

“This is the best way to overcome our challenges,” Pritzker said.

©2019 Bloomberg L.P.