How would a graduated income tax work in Illinois? Here's how three nearby states do it
The gubernatorial candidates' diverging views on flat versus progressive income taxes have generated rancor and insults but few details on what a fundamental shift in Illinois' system would mean.
Republican Gov. Bruce Rauner wants to lower the state's 4.95 percent flat tax, and Democrat J.B. Pritzker seeks a graduated or progressive tax with different brackets based on earnings.
"The vast majority of the people in the state of Illinois should get an income tax break," Pritzker said in a recent interview. "The wealthiest people in the state can afford to pay a little bit more."
Rauner charges the plan will raise taxes for the middle class, which Pritzker disputes. "Nightmare for Illinois," Rauner told the Daily Herald. "We cannot raise taxes more to solve any of our problems."
So what does a graduated income tax mean? Here's how it works in three nearby states.
Ohio has used a progressive tax since 1973. People with taxable income up to $10,850 get a break in taxes; the rest of Ohioans fall into seven categories with tax rates ranging from 1.98 percent in the lowest bracket to 4.9 percent in the highest. Taxpayers also pay a base amount ranging from about $81 to $8,333 over the seven brackets.
For example, an individual or couple would pay 1.98 percent on taxable income between $10,851 and $16,300, then 2.47 percent on taxable income between $16,300 and $21,750, and so on. Taxable income between $43,450 and $86,900 is taxed at 3.46 percent, and taxable income between $86,900 and $108,700 is taxed at 3.96 percent.
The Ohio Department of Taxation estimated a married couple under age 65 filing jointly and making $100,000 a year could have a tax liability of $2,703 after tax credits and other variables were figured in.
Wisconsin also uses a graduated system with four brackets from 4 percent to 7.65 percent. For a single person or head of household, that means taxable income from zero to $11,450 is taxed at 4 percent, taxable income between $11,450 and $22,900 is taxed at 5.84 percent, taxable income between $22,900 and $252,150 is taxed at 6.27 percent, and taxable income of $252,150 and higher is taxed at 7.65 percent.
Wisconsin also uses a set amount in addition to percentages in calculating taxes.
The Wisconsin Department of Revenue estimated a married couple making $100,000 a year might have a net tax amount of between $4,000 and $4,900 depending on deductions and credits.
Minnesota has a progressive income tax with four levels that start at 5.35 percent and rise to 9.85 percent.
For a married couple filing jointly, that means taxable income from zero to $37,850 has a tax rate of 5.35 percent, between $37,851 and $150,380 has a 7.05 percent tax rate, from $150,381 to $266,700 has a 7.85 percent rate, and $266,700 and higher has a 9.85 percent rate.
In Illinois, "the bottom 20 percent are paying roughly 13 to 13.5 percent of their income in state taxes" that include sales and other taxes, Hyatt hotel heir Pritzker said. "The people at the top are paying 6 percent. That seems very unfair."
He promised that shifting to a progressive tax would lower property taxes for schools.
Rauner, a venture capitalist, disagrees.
"I want to roll the income tax rate back down to 3 percent over the next four or five years," he said. Changes in pensions and health care spending and consolidating government can achieve about $6 billion to pay for the tax cuts and grow the economy, he said.
Nine states have no income tax, eight have a flat tax, and 33 use a progressive system, according to the IRS and TurboTax.