Illinois: Proposal to swap flat income tax rate with a graduated structure dead for now

Just last week, we described a proposal from an Illinois lawmaker that involved removing the state’s Constitutional requirement that the individual income tax be at a flat, non-graduated rate. Had it passed, the measure would have freed lawmakers to convert the single-rate individual income tax into a four-bracket tax, by way of a different bill, HB 689. This move would have raised taxes on pass-through entities.

In reporting on the fact that the bill died rather quickly in the House, the Northwest Herald quoted opponents who were grateful for its speedy demise, describing the plan as a “job killer because of its potential impact on small businesses.”

The authors of HB 689’s fiscal note anticipated a domino effect of unfavorable economic consequences, caused by the “out-migration” of 43,000 residents fleeing the higher tax burden. In the first four years, economists predicted total private employment declines by more than 20,000 jobs and a contraction of the real gross domestic product by $1.9 billion.

After 14 years, economists expected disposable personal income decreases of $2.8 billion per year; real gross domestic product decreases of $1.7 billion; and total employment decreases of almost 18,000 jobs.

The Northwest Herald noted that lawmakers will now return to the business of finalizing the state’s budget; Illinois has been operating without one since last July.