A new study from the Institute on Taxation and Economic Policy says Illinois residents face one of the most regressive state and local tax systems in the nation.
The institute — which defines regressive taxation as a system in which lower income people pay a higher percentage of their income in taxes than those who are more well to do — says Illinois ranks 5th in the nation for regressiveness — behind only Washington State, Florida, Texas and South Dakota.
The study says state and local taxes consume 13.2 percent of the income of the lowest 20 percent of Illinois residents — compared to less than 5 percent of the income of those in the top 1 percent of the income distribution.
The Institute included the recent rollback of the Illinois state income tax to 3.75 percent in making its calculations.
Although municipalities have some discretion in the level of taxes they impose, state governments generally specify the types of taxes available to municipalities, and generally required that they be applied at a flat rate.
Thus, although many residents describe Evanston as a progressive community, it generally imposes taxes that have a similarily disparate affect on the poor as other towns do.
There are some slight variations in taxes collected by the state on behalf of municipalities.
The home rule sales tax in Evanston and Wilmette is 1 percent — while in other communities, including Chicago and Skokie, it is 1.25 percent.
On the other hand, Evanston, Skokie and Wilmette all impose a local 6 percent tax on telecommunication services, while Chicago does not.
Update 12:55 p.m.: When it comes to local taxes that aren’t collected by the state, as a reader pointed out in an email, Evanston has the highest tax on liquor in the region at 6 percent. It also has one of the highest real estate transfer tax rates in the state, at $5 per $1,000 of the sales price.
Update 2:10 p.m. 1/22/15: A different group that analyzes tax rates — the Tax Foundation — offers a critique of the methodology of the ITEP report here.
Since when is “Fair Share” by percentage?
Let see 13.2% of $19,000 is $2,508 and 4.6% of $500,000 is $23,000. Please give me more people paying 4.6% of bigger incomes. The family with the higher income is paying nine times the amount of the lower income family. Does the family making more get nine times more things from the state (Police protection, Fire protection and/or Education for their children…..)? Just depends on how you rate fairness.
Regressive
The story does not address "fairness" and never used that term.
"Regressive" — the term the story does use — describes a mathematical situation in which people with less income pay a higher percentage of their income in taxes.
Whether that is fair is a moral or ethical conclusion — frequently influenced by one's position in the income distribution.
A preference for a less regressive — often described as more "progressive" — tax structure — is associated with liberal, Democratic politics.
For a community as liberal and Democratic as Evanston, located in a relatively liberal state like Illinois to have among the most regressive tax systems seems newsworthy.
— Bill
agreed, but
Agreed, but the article does not present a balanced or thorough analysis of who generates the majority of tax revenues at every level of Government. To me, the article could leave an impression, almost an insinuation, that lower income populations generate more tax dollars overall, and thats nowhere near the truth.
Not denying the regressive tax structure in the percentage terms they present, but it would be fair to also show where the majority of tax dollars do come from and what the percentage is that lower income populations contribute towards that grand total.
The Institute on Taxation and Economic policy, while stating a bipartisan agenda, does trend biased, and a complete picture wouldn't help promote that bias.
These "studies" often make analysis that favor a bias, and we should all be watchful of these so called independent bipartisan studies.
Illinois taxes
The system is unfair because it places a higher burden on lower income people who are already struggling. Consider someone making $50,000 a year. According to this chart they will pay 10.8% or slighly more than $5000 dollars in taxes. Using our common sense we already know that someone making $50,000 probably is struggling to make ends meet and has limited discretionary income and the $5000 tax is a significant burden and reduces the quality of life.
On the other hand the person making $500,000 pays at 4.6% which makes his total tax under $25,000. However we also know that the person making $500,000 normally has a great deal of discretionary income and can probably afford to pay the $25,000 without reduction in quality of life. To look at it another way after his taxes are paid he is "only" left with $475,000. So he is doing OK and we don't have to worry about him. He could probably afford to pay somewhat more without to much pain and the tax burden on those with lesser income can then be reduced.
Elsewhere
Story in Crain's comparing tax rates in Illinois, Indiana and Wisconsin notes that Wisconsin has a progressive income tax, with a rate that starts at 4 percent and top out at 7.65 percent, unlike the flat rate here in Illinois.
— Bill