Understanding the Graduated Income Tax Referendum

In the final days before the November 2020 election, I want to give you some parting words before you cast your vote regarding the Graduated Income Tax referendum.  The NACC has taken a strong position in opposition to the many threats it poses to the business community and encourages you to vote “NO” on the referendum.

Below is the actual wording of this referendum  you will see on your ballot:

 “The proposed amendment grants the State authority to impose higher income tax rates on higher income levels, which is how the federal government and a majority of other states do it. The amendment would remove the portion of the Revenue Article of the Illinois Constitution that is sometimes referred to as the “flat tax,” that requires all taxes on income to be at the same rate. The amendment does not itself change tax rates. It gives the State the ability to impose higher tax rates on those with higher income levels and lower income tax rates on those with middle or lower income levels. You are asked to decide whether the proposed amendment should become a part of the Illinois Constitution.”
___Yes      ____No

Often, we hear the graduated income tax referred to as the “fair tax” – where higher-income earners would pay a higher tax rate. Data negates this and shows that the two highest tiers of income earners – $100,001-$500,000 and $500,001+ respectively at our current fixed income tax rate contribute 67% of our state’s income tax revenues, yet these top tiers represent only 20% of all the income earners in the state of Illinois – according to the Illinois Department of Revenue. Furthermore, proponents of moving to a graduated income tax are fueled by relief for lower-income households which are minimal from the estimates that I have seen and could change year to year based on what the general assembly decides to set for the tax rate for any given year.  If the true intent is to support lower-income families, creating tax credits for these families would ensure the intended results.  We don’t need to open pandora’s box of a blank check to our state government under the guise of supporting low-income families and losing key tax protections for businesses.

There are two key tax payer protections in the current constitutional amendment that would be lost under the graduated income tax proposal that would significantly impact the business community:

  1. The state can only levy one tax-based income – if removed, industries would be vulnerable to double taxing based on the whelm of future general assemblies to gain additional tax revenues
  2. The state is capped on the tax rate it can impose or levy on corporations

Illinois currently has the 4th highest corporate tax rates in the country.  If these two protections are lost by the adoption of the graduated income tax, business retention and attraction efforts will be diminished. The neighboring states of Indiana, Iowa, Kentucky, and Missouri have all cut corporate income taxes in recent years, while Illinois is proposing the opposite course.* Business investment creates jobs and spur all aspects of the economy.

NACC Business Works offered a Graduated Income Tax Forum – you can view and listen to the full recording of the event to gain in depth understanding of each side of the issue here.

Call Reba Osborne at 630.544.3387 or email at rosborne@naperville.net anytime with questions on this issue or if you have a policy issue you would like our Business Work Steering Committee to review as part of our advocacy efforts.

* (Tax Foundation, Twelve Things to Know About the “Fair Tax” for IL, 3/11/20)

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