illinois is a high-tax state

7/30/2019 Illinois is a high-tax state

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ILLINOIS POLICY INSTITUTE JULY 18, 2013

SPECIAL REPORT BUDGET & TAX

Illinois high-tax problemTed Dabrowski, Vice President o Policy,and John H. Klingner, Public Policy Research Assistant

Additional resources: illinoispolicy.org

190 S. LaSalle St., Suite 1630, Chicago, IL 60603 | 312.346.5700 | 802 S. 2nd St., Springled, IL 62704 | 217.528.8800

The problem

In 2011, Illinois Gov. Pat Quinn and the Illinois General Assemblyused a lame duck session to pass a 67 percent personal incometax increase and a 46 percent corporate income tax rateincrease. The governor promised the tax hike would help pay othe states massive liabilities and restore economic prosperity.1

But the promises Quinn made regarding the tax hike have notcome true. Since the hike, the states economy has remainedstagnant and its scal reality has worsened. In act, Illinois hashad its credit rating downgraded several times since the taxhike,2 the ununded pension liability has continued to increase

and the states unpaid bills still amount to more than $6 billion.3

Now some Illinois lawmakers want to make things worse.Many in Springeld are looking to renege on their promises totaxpayers by proposing to extend the 2011 income tax hikeindenitely, though the tax hike is set to sunset to 3.75 percentrom 5 percent in 2015.

Even worse, some politicians want to burden the states economyand taxpayers urther by instituting a progressive income tax.

It appears Illinois politicians have learned nothing rom theailures o the 2011 tax hike.

Meanwhile, many o Illinois neighbors are generally reining

in spending, lowering tax rates and solving long-term decitproblems. Some neighboring states have been proactive andreduced their tax burdens. Indiana is lowering its corporate taxrate rom 8.5 percent to 6.5 percent.4 Other states, such as Iowaand Missouri, gained a competitive edge on tax-hiking Illinois bysimply letting their current rates stand.

Illinois currently has a total tax burden in the top ourth o allstates. While data or 2011 state and local tax burdens are notyet available, one thing is clear: Illinois isnt just a high-tax state;it is an even higher-tax state than it was beore.

Illinois has the 9th-highest tax burden o any state

Illinois had the ninth-highest tax burden in the country in scalyear 2010 at $4,512 per capita, higher than all its borderingstates.

Graphic 1. State and local tax burden per capita, fsca

year 2010

State State and local tax burden ($) Rank

Illinois 4,512 9

Wisconsin 4,379 11

Iowa 3,660 26

Missouri 3,328 30

Indiana 3,294 32

Kentucky 3,027 43

Source: Tax Foundation5

Graphic 2. State and local tax burden as a percentage o

state income, fscal year 2010

State State and local tax burden (%) Rank

Wisconsin 11.1 5

Illinois 10.2 11

Indiana 9.6 23

Iowa 9.6 24

Kentucky 9.4 26

Missouri 9.0 34


The per capita tax burden on Illinois taxpayers is in the top thirdo all states. No bordering state comes close to Illinois exceptWisconsin, which is higher. And the 2011 income tax hike willonly make Illinois rankings worse.

Illinois has the highest sales taxes o its neighbors

Illinois has high sales taxes. As o January 2013, Illinois had the11th-highest combined state and average local sales tax rate in

the country at 8.13 percent higher than all bordering states.7Chicagos combined sales tax rate o 9.75 percent tied with LosAngeles as the highest sales tax among major U.S. metropolitanareas in 2010.8 Such high rates push consumers and businessesto fee to nearby states to buy and sell, depressing state taxcollections. Every transaction made in Wisconsin, Missouri orIndiana by an Illinois resident is one less revenue opportunityor Illinois.


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illinoispolicy.org | 2

Graphic 3. Combined state and local sales tax rates, Jan. 1, 2013

State State rate (%) Average local rate (%) Combined rate (%) Rank

Illinois 6.25 1.88 8.13 11

Missouri 4.23 3.28 7.51 14

Indiana 7 None 7 20

Iowa 6 0.78 6.78 27

Kentucky 6 None 6 37

Wisconsin 5 0.43 5.43 44


Illinois property taxes are in the top 10 nationwide

In 2009, Illinois median property taxes paid were seventh-highest in the nation at $3,507, exceeding all bordering states. The statealso had the second-highest property taxes as a percentage o median home value at 1.91 percent, and the th-highest propertytaxes as a percentage o median homeowner income at 5.11 percent.10

Graphic 4. Measures o the property tax burden, fscal year 2009-11

StateMedian income for home

owners ($)Taxes as %of income Rank

Median property taxespaid on homes ($) Rank Median home value ($)

Taxes as %of home value Rank

Illinois 68,578 5.11 5 3,507 7 202,200 1.91 2

Wisconsin 62,494 4.81 8 3,007 9 170,800 1.74 4

Iowa 58,613 2.68 26 1,569 28 122,000 1.36 14

Missouri 56,517 2.24 32 1,265 35 139,700 1.00 23

Indiana 56,350 1.87 37 1,051 40 123,100 0.88 29

Kentucky 50,545 1.67 40 843 43 117,800 0.76 36

Source: U.S. Census Bureau data as presented by the Tax Foundation11

Illinois excise taxes are higher than most neighboring states

Illinois has high excise taxes compared to other states. Illinois has the th-highest state gas tax at 39 cents per gallon.

Graphic 5. State gasoline tax rates, Jan. 1, 2013

State Excise tax ($ per gallon) Other taxes and fees ($) Total ($) Rank

Illinois 0.19 0.20 0.39 5

Indiana 0.18 0.20 0.38 7

Wisconsin 0.31 0.02 0.33 14

Kentucky 0.29 0.01 0.30 18

Iowa 0.21 0.01 0.22 33

Missouri 0.17 0.0 0.17 45

Note: The American Petroleum Institute (API) has developed a methodology or determining the average tax rate on a gallon o uel. Rates may include any othe ollowing: excise taxes, environmental ees, storage tank taxes, other ees or taxes and general sales tax. In states where gasoline is subject to the generalsales tax, or where the uel tax is based on the average sale price, the average rate determined by API is sensitive to changes in the price o gasoline. Statesthat ully or partially apply general sales taxes to gasoline: CA, CT, GA, IL, IN, MI and NY.

Source: American Petroleum Institute as presented by the Tax Foundation12


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Illinois has high taxes on beer, wine and spirits as well. Illinois tax rate or beer is 23 cents a gallon, higher than all bordering statesexcept Kentucky.

Graphic 6. State alcohol taxes (per gallon), Jan. 1, 2013

State Beer ($) Rank Wine ($) Rank Spirits ($) Rank

Kentucky 0.76 7 3.16 1 6.86 17

Illinois 0.23 27 1.39 10 8.55 14

Iowa 0.19 31 1.75 4 12.99 6

Indiana 0.12 42 0.47 35 2.68 42

Wisconsin 0.06 48 0.25 42 3.25 39

Missouri 0.06 49 0.42 37 2.00 47


With the $1 increase in tobacco taxes in 2012, Illinois tobacco tax is now higher than all neighboring states except Wisconsin. AnIllinoisan can save an astounding $1.81 per pack by shopping across the border in Missouri.

Graphic 7. State tobacco taxes, June 1, 2013

State Tobacco excise tax ($ per pack) Tax difference between Illinois and bordering state ($) Rank

Wisconsin 2.52 -0.54 8

Illinois 1.98 15

Iowa 1.36 0.62 24

Indiana 1.00 0.98 31

Kentucky 0.60 1.38 39

Missouri 0.17 1.81 50

Note: Tax is on a standard 20-pack o cigarettes


Illinois cell phone tax rate is also higher than all o its neighbors.Residents in nearby states pay an average o 6 percent less intaxes on their phone bills.

State Avg. State & Local Tax Rate (%) Rank

Illinois 15.9 5

Missouri 14.3 7

Indiana 10.9 22

Kentucky 10.5 24

Iowa 8.0 34

Wisconsin 7.2 42

Graphic 8. State and local cell phone tax rates, July 1,

2012


Illinois estate taxes are higher than most states

Illinois collected $243 million in estate and git taxes in 2010The state had the 14th-highest estate taxes per capita highethan three o its ve border states. Illinois estate taxes are evenhigher when measured per death: 13th-highest in the nation a$2,418. Only Iowa had higher estate taxes.

Graphic 9. State estate taxes per death, June 1, 2010

State Taxes per death ($) Rank

Iowa 2,451 12

Illinois 2,418 13

Indiana 2,358 14

Kentucky 887 18

Wisconsin 19 29

Missouri 5 35

Source: Commission on Government Forecasting and Accountability16


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Chicago has the highest travel taxes in the nation

Thanks to Chicagos high travel taxes, spending one night in thecity is more expensive than all other top 50 travel destinations inthe nation. For example, it is 81 percent more expensive to stayone night in Chicago than it is to stay one night in Fort Lauderdale,Fla. Businesses take such numbers into consideration whendeciding meeting locations, where to hold events and how tospend travel dollars.

Graphic 10. Combined single-day travel taxes in top 50

travel markets, 2012

City Combined single day travel taxes ($) Rank

Chicago, IL 40.31 1

New York, NY 37.98 2

Boston, MA 34.83 3

Kansas City, MO 34.58 4

Seattle, WA 34.43 5

Portland, OR 22.45 46

Detroit, MI 22.37 47

West Palm Beach, FL 22.21 48

Fort Myers, FL 22.21 49

Fort Lauderdale, FL 22.21 50

Note: Overall travel tax burden includes general sales tax and discriminatorytravel taxes on car rentals, hotel stays and meals. Discriminatory travel taxes aretargeted at travelers or travel-related areas and go above the general sales tax.

Source: Global Business Travel Association17

Illinois loses competitive advantage due to tax increases

Illinois had the 22nd-highest individual income tax collections percapita in scal year 2011, higher than all o its neighbors exceptIowa and Wisconsin, according to the Tax Foundations adjusteddata.18 That ranking encompasses only hal o the 2011 incometax increase, so Illinois tax rankings will only worsen when theTax Foundation revisits income tax rankings or 2012. The taxhike made the personal income tax more severe, increasingIllinois state income tax rate to 5 percent rom 3 percent, awhopping 67 percent increase.

During consideration o the tax hike in January 2011, the Tax

Foundation warned that the income tax increases would damageIllinois tax competitiveness and harm the states economy,saying: The enacted tax increases will severely impact Illinoisattractiveness to business and individuals. The states individualincome tax, in particular, has been one o the best eatures oIllinois tax system.19 That competitive advantage is now gone.

Graphic 11. State individual income tax collections per

capita, fscal year 2011

State State individual income tax collections ($) Rank

Wisconsin 1,128 10

Iowa 933 17

Illinois 873 22

Kentucky 784 26

Missouri 755 30

Indiana 705 32


Illinois corporate tax rate is the 4th-highest in the

developed world

In 2010, corporate income tax collections per capita in Illinoisranked 17th-highest in the country, according to the TaxFoundations adjusted numbers.21 In 2011, Illinois corporateincome tax rate increased 47 percent, to 7 percent rom 4.8percent. Add to that the corporate personal property replacemen

tax o 2.5 percent and the total 2011 corporate tax ratebecomes 9.5 percent. In terms o international competitivenessthe combined ederal and state corporate income tax rate inIllinois is 41.2 percent, the ourth-highest in the country and inthe industrialized world.22

Graphic 12. State corporate income tax collections per

capita, fscal year 2011

State State corporate income tax collections ($) Rank

Wisconsin 149 16

Illinois 144 17

Kentucky 119 24

Indiana 110 27

Iowa 82 36

Missouri 54 41



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Graphic 13. Comparing combined U.S. and state corporate income tax to OECD* countries, 2011

State/country Federal tax rate (%)Top state/provincial

tax rate (%)Combined federal and state tax rate (%)

(adjusted)** State rank Country rank

Iowa 35 12 41.6 1 --

Pennsylvania 35 9.99 41.5 2 --

Minnesota 35 9.8 41.4 3 --

Illinois 35 9.5 41.2 4 --

Indiana 35 8.5 40.5 12 --

Wisconsin 35 7.9 40.1 18 --

United States 35 (avg) 6.56 39.3 -- 1

Missouri 35 6.25 39.1 33 --

Kentucky 35 6 38.9 35 --

Japan 30 (avg) 11.51 34.54 -- 2

France 34.43 - 34.43 -- 3

*Organization or Economic Cooperation and Development

**The combined rate is adjusted or ederal deduction o state tax. Iowa and Louisiana are also adjusted or ederal deductibility.


The 2011 income tax increases will worsen Illinois

income tax ranking

Prior to the tax hikes, Illinois had the 22nd-highest personalincome tax per capita and the sixth-highest corporate incometax per capita. Unortunately, no nal and adjusted numbers thattake into account Illinois tax hikes have been released or 2011.

However, there is a proxy that can be used to estimate theimpact o the tax increase. 2011 U.S. Census Bureau data, whichare not nal or adjusted, can be used to examine the relativemovement in Illinois income tax ranking due to the tax increase.

According to 2011 U.S. Census Bureau data, the hike causedIllinois total state income tax collections per capita ranking toworsen 10 places rom scal year 2010 to scal year 2011.Illinois ranking worsened more than any state in the Midwest, to19th-highest in scal year 2011 rom a ranking o 29th-highestin scal year 2010.25

We dont know yet how ar Illinois nal and adjusted rankinghas allen, but the census numbers indicate that it will allsignicantly. By any measure, the tax increase has weakenedIllinois competitiveness.

The solution

First, Illinois should repeal the 2011 income tax increases to helpmake the state more competitive both nationally and globally.

Second, Illinois should lower other taxes such as sales,property and excise taxes so that it has the lowest tax ratesrelative to its Midwest neighbors. This would help create taxcompetitiveness or Illinois in the region.

Third, Illinois should reject any attempts to adopt higher tax ratesor progressive tax rate structures and, instead, work to abolishits personal and corporate income taxes entirely as part o a

undamental tax-system restructuring.

Why it works

Illinois tax code does not operate in a vacuum. Entrepreneursinvestors, workers, consumers and taxpayers, both inside andoutside the state, constantly compare and contrast Illinois withstates in the Midwest and across the nation.

Illinois has an unattractive tax code compared to both itsneighbors and around the nation. No state has ever taxed itsway to prosperity.

Illinois needs to restore condence and can do this by repealingthe 2011 tax hikes. This will send a strong signal that the state

will not continue the ailed tax policies o the past.

This would also orce Quinn and the General Assembly to ocuson reorming state programs and encourage a pro-growthenvironment. Finally, and most importantly or the long-termprosperity o the state, a repeal o the tax hike would allow thetaxpayers o Illinois to keep more o their income to spend asthey choose, and businesses to keep more prots to reinvesand hire more workers.

In the long term, abolishing income taxes would help Illinoisachieve the goal o going rom worst to rst among its neighborsin economic growth, job creation and competitiveness.


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Endnotes1 Pat Quinn. Speech. Post Tax Hike Press Conerence. Press Room, Springfeld.Youtube.com. 12 Jan. 2011,http://www.youtube.com/watch?v=U2kcieIEyQ.

2 Moodys Gives Illinois worst credit rating in nation, CBS News, Jan. 6, 2012,http://chicago.cbslocal.com/2012/01/06/moodys-gives-illinois-worst-credit-rating-in-nation/.

3 Ofce o the State Comptroller. http://ledger.illinoiscomptroller.com/.

4 Governor signs legislation to lower Indianas corporate tax rate to 6.5 percent, May 11, 2011,http://www.in.gov/portal/news_events/70139.htm.

5

ed. Scott Drenkard, Facts & fgures handbook: How does your state compare? Tax Foundation, March 8, 2013, http://taxoundation.org/article/acts-fgures-handbook-how-does-your-state-compare-0.

6 Ibid.

7 Ibid.

8 Lawrence Summers, Major metropolitan areas sales tax rates. Tax Foundation, Aug. 19, 2010,http://www.taxoundation.org/publications/show/26622.html.

9 Scott Drenkard, State and Local Sales Tax Rates Midyear 2013 Tax Foundation, August 28, 2013, http://taxoundation.org/article/state-and-local-sales-tax-rates-midyear-2013.

10Tax Foundation, Property taxes on owner-occupied housing by state, 2004 2009, Sept. 28, 2010,http://taxoundation.org/article/property-taxes-owner-occupied-housing-state-2004-2009 .

11 Ibid.

12 ed. Scott Drenkard, Facts & fgures handbook: How does your state compare? Tax Foundation, March 8, 2013, http://taxoundation.org/article/acts-

fgures-handbook-how-does-your-state-compare-0.13 Ibid.

14 Ibid.

15 Ibid.

16 Illinois Estate Taxes June 2012 Update, Commission on Government Forecasting & Accountability, June 2012,http://www.ilga.gov/commission/cga2006/Upload/2012IllinoisEstateTax.pd.

17 Global Business Travel Association, GBTA Reveals Best and Worst Travel Taxes in Top 50 U.S. Destinations, Sept. 10, 2012, http://www.gbta.org/oundation/pressreleases/Pages/rls_091012.aspx.

18 Census data should be corrected or the impact o Illinois income taxes on Illinois residents, The Tax Foundation has adjusted the data to exclude revenuerom non-state residents, but they do not include local-government tax collections.

19 Kail Padgittv and Joseph Henchman, Illinois Approves Sharp Income Tax Increase, Fourth-Highest Corporate Tax Rate, Tax Foundation, Jan. 13, 2011,http://taxoundation.org/article/illinois-approves-sharp-income-tax-increase-ourth-highest-corporate-tax-rate .

20ed. Scott Drenkard, Facts & fgures handbook: How does your state compare? Tax Foundation, March 8, 2013, http://taxoundation.org/article/acts-fgures-handbook-how-does-your-state-compare-0.

21 Ibid.

22 Scott Hodge, Illinois corporate tax hike inches US closer to #1 ranking globally. Tax Foundation, Jan. 14, 2011, http://taxoundation.org/article/illinois-corporate-tax-hike-inches-us-closer-1-ranking-globally.

23 ed. Scott Drenkard, Facts & fgures handbook: How does your state compare? Tax Foundation, March 8, 2013, http://taxoundation.org/article/acts-fgures-handbook-how-does-your-state-compare-0.

24 Scott Hodge, Illinois corporate tax hike inches US closer to #1 ranking globally. Tax Foundation, Jan. 14, 2011, http://taxoundation.org/article/illinois-corporate-tax-hike-inches-us-closer-1-ranking-globally.

25 2011 Annual Survey o State Government Tax Collections, US Census Bureau, http://www.census.gov/govs/statetax/, and the Federal Reserve Bank oSt. Louis, http://www.stlouised.org/.

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