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Tuesday, August 16, 2022

Business Works – Understanding Graduated Income Tax Proposal on the November Ballot – Part 1

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One of the decisions to be made by voters on the November 3 ballot is a referendum to change Illinois’ constitution shifting from our current flat income tax to be replaced by a progressive (graduated) tax where individuals and businesses are taxed at different rates based on income levels.

Currently, all wage earners pay a flat 4.95 % income tax rate. The graduated income tax would create brackets where higher earners would pay a higher tax rate.

A graduated tax structure is often presented as the “fair” tax where higher income earners contribute higher amounts to the state tax coffers.

However, according to the Illinois Department of Revenue data, the highest two 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. To clarify, higher income earners contribute disproportionately more to the state income tax revenue base, currently.

Furthermore, many assume the shift to a graduated income tax will solely impact the “wealthy.” However, small business owners are vulnerable to increased tax rates as well. Small business owners (some sole proprietors, partnerships, Sub-S Corps, or LLP/LLC) typically pay individual income tax on their business income, rather than corporate tax. Increasing tax rates on small businesses leaves less available revenues for economic expansion such as hiring additional employees or making capital investments.

In the coming months, we will continue to discuss this ballot referendum to detail if a graduated income tax will support economic growth and a thriving community.

Editor’s Note / This column is the first in a series that will address the ballot issue proposed for the Nov. 3, 2020 Election. When the language is set as it will appear on the ballot, it will be posted. The first day of  Vote By Mail is Sept. 24.

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Reba Morgan Osborne
Reba Morgan Osbornehttp://naperville.net
Reba Morgan Osborne is the Director of Government Affairs for the Naperville Area Chamber of Commerce. Contact Reba at (630) 544-3387 or rosborne@naperville.net.

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