Will wealthy leave Illinois if graduated income tax happens? It didn't happen with last tax hike

Gov. J.B. Pritzker faces reporters Tuesday after releasing language for a graduated income tax constitutional amendment during a news conference in his office in Springfield. Jerry Nowicki/Capitol News Illinois

By Tim Jones and Bob Secter Better Government Association

When Illinois' income tax rate jumped a record 67% earlier this decade, critics warned it would drive away the wealthy who invest in businesses and jobs.

Similar arguments are now being raised by opponents of Gov. J.B. Pritzker's push for a new and steeper tax hike on the wealthy. But if past is prologue, a trove of federal data on Illinois taxpayers challenges predictions of a stampede for the exits among residents of means.

At the same time, a BGA analysis of the records shows that the big tax hike coincided with a steep drop in the number of low- and modest-income taxpayers, with the biggest impact downstate and in some minority neighborhoods in Chicago.

The federal records reveal robust growth in the numbers of Illinois tax filers with incomes of $100,000 or greater from 2011 through 2014 when lawmakers temporarily boosted the state's flat income tax rate to 5% from 3%.

Over that time, the total number of federal tax filers in the state grew by 9,000, an almost imperceptible one-tenth of 1%. But the number of filers reporting adjusted gross income between $100,000 and $200,000 grew by 16%, while the number reporting income over $200,000 rose by 29%.

The wealthiest got even wealthier, with 3,618 Illinoisans reporting $1 million-plus incomes in 2014, up 25% from four years earlier.

Those earning more than $100,000 annually accounted for all the increase in collective earnings among Illinois taxpayers between 2006 and 2016. Meanwhile, more than 70% of Illinois tax filers reported annual income of less than $75,000 in 2016, and there were 300,000 fewer of them that year than in 2006.

It's possible some data fluctuations can be accounted for by taxpayers of modest means doing better and moving into higher income brackets. Also worth noting is that many poor and elderly earn so little that they are not required to submit returns and aren't reflected in the total number of Illinois filers, which stood at 6.1 million in 2016.

Those caveats aside, the falloff in low- and medium-income federal tax filers far exceeds the growth in the ranks of those at the top.

Population loss, tax issues and the poor condition of state finances have become intertwined of late, with many conservatives treating it as a given that Illinois' steep debt and tax structure, including high property taxes, was driving out jobs and people.

The arguments have bubbled to a fresh boil after Pritzker unveiled details of his proposal to replace the current 4.95% flat tax with a graduated schedule of rates that would charge more to higher-income taxpayers.

Illinois' new Democratic chief executive says the changes, requiring a constitutional amendment before any rate adjustment, would raise billions, stabilize precarious finances and make income taxes fairer. Critics, however, say graduated hikes would be shortsighted by driving away the wealthy who already pay a large share of taxes and make business investments that lead to jobs.

"The high-wealth earners will leave Illinois," House Republican leader Jim Durkin of Westchester said during an interview with a downstate radio station, echoing an argument leveled by critics before the 2011 tax hike.

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