Suburbs' contribution to state revenue would increase under graduated tax
Editor's note: This story is part of an ongoing series about proposed changes in the state income tax formula.
Chicago and the suburbs contribute three-quarters of all income tax revenue collected by the state, and that would increase under a proposed graduated tax.
That's because 85% of tax filers who would pay higher rates under the two graduated tax proposals live in Chicago and the suburbs, according to a Daily Herald analysis of Illinois Department of Revenue income tax data.
Of the 18 Illinois ZIP codes where the average income is high enough to trigger a higher tax rate, 15 are in Chicago and the suburbs.
Both tax proposals would raise rates on income over $250,000, while those with incomes below $250,000 — 97 percent of Illinois taxpayers, including the majority in Chicago and the suburbs — would pay less than they do now.
Communities where the average income tops $250,000 are Glencoe, Golf, Highland Park, Kenilworth, Lake Forest, Oak Brook and Winnetka, the analysis of reported income in the state's 1,450 ZIP codes shows. Some neighborhoods in Chicago and Hinsdale also have average incomes of $250,000 or higher.
According to the analysis, the average taxpayer in those suburbs would see income tax bill increases ranging from $122 in Oak Brook to $14,440 in Kenilworth.
“There is a view downstate that this is really targeting Chicago and the suburbs because that's where all the wealth is concentrated,” said Jeremy Groves, an associate professor of economics at Northern Illinois University.
“That's seen as a selling point to supporters.”
Taxpayers in Chicago and the suburbs filed 136,790 of the 160,799 tax returns showing income of $250,000 or higher in 2016, according to the revenue department reports.
Nearly 5.6 million Illinois tax returns were filed in all, and more than 80% of them report income less than $100,000. Those filers would pay less than they do now under a graduated tax system.
Five of the 20 ZIP codes with the lowest average income are in Chicago. Four are in East St. Louis, two are in Rockford and the rest dot the state.
Under the graduated tax proposal, “we have a rate that is lower than we have now for low-income working families and those who make less than $250,000 that we deem as middle class,” said Deputy Gov. Dan Hynes.
The graduated tax is expected to bring in an additional $3.4 billion.
“As a statewide solution, this is the way we should look at it,” Hynes said.
Oak Brook Village Trustee Michael Manzo complained about the proposal Gov. J.B. Pritzker has dubbed the “Fair Tax.”
“It's an unfair tax,” Manzo said. “I'm not just saying that because of its effect on Oak Brook, but the entire state of Illinois. You've got residents fleeing the state because of policies like this, and everyone left behind will have to wind up paying more to make up for it.”
The Better Government Association showed that after lawmakers temporarily raised the income tax rate from 2011 to 2014 the number of taxpayers with income of $100,000 or more increased while the number of low- and moderate-income Illinoisans dropped sharply.
The state revenue data includes post office box ZIP codes in Chicago, Northbrook, Peoria and Rockford where tax filers had average income of $250,000 or more.
Ninety-eight tax returns filed from the Northbrook post office boxes reported income averaging nearly $5 million, which would result in $246,987 of state income taxes at the current rate. The amount owed would increase roughly 60% to nearly $400,000 with the graduated tax. That's because tax returns with more than $1 million of reported income would be subject to a flat tax of either 7.95%, as Pritzker proposed, or 7.99%, the maximum rate in a Senate proposal.
All of the state's 13 billionaires live in Chicago and the suburbs, according to a 2018 Forbes magazine report.
One of them is Pritzker, an heir to the Hyatt Hotel empire. In 2018, he reported $55 million in state taxable income and paid $812,000 in income taxes to the state, after deductions and exemptions.
If Pritzker reported similar earnings under a graduated income tax plan, he'd pay nearly $1.3 million.
Lake County has the highest concentration of filers making $250,000 or more, at 6.6% of tax returns filed. Lake County residents on average paid $3,781 in income taxes in 2016. The average DuPage County income tax bill was next at $3,054. Cook County taxpayers averaged the third highest income tax bill at $2,448. McHenry County had the fifth highest average income tax bill, while Kane and Will counties were No. 8 and No. 9 respectively.
Under the graduated income tax plan that passed the House Revenue Committee on Friday, tax rates rise in steps, with the first $10,000 in income taxed at 4.75%, the next $90,000 taxed at 4.90%, and the next $150,000 taxed at 4.95%.
Any income over $250,000 triggers a tax rate of 7.75%. The rate climbs to 7.85% for income over $350,000 for single filers and $500,000 for couples.
The biggest tax increase is for single filers with income over $750,000 and married couples with incomes over $1 million. Their tax rate is 7.99%, and unlike people in lower income brackets, they would pay that flat rate on all of their income. Pritzker recommended a 7.95% flat tax rate on all filers whose income exceeds $1 million.
A full vote is expected this week in the House.
The House still has to vote on a resolution to change the constitutional requirement of a flat income tax rate. That vote requires 60% or more to pass. If approved by the House, more than 60% of the voters in the Nov. 3, 2020, election would have to approve the measure for it to take effect.
Income tax generators
Chicago and the suburbs were responsible for 75% of the state's income tax revenue in 2016, but taxpayers there likely will cover a larger share if the graduated income tax plan passes.
Location: Total tax paid / average tax paid
Cook County: $5,674,647.468 / $2,448
DuPage County: $1,370324,548 / $3,054
Kane County: $524,371,857 / $2,296
Lake County: $1,206,518,670 / $3,781
McHenry County: $343,252,341 / $2,342
Will County: $705,313,938 / $2,286
Illinois: $12,992,337,280 / $2,287
Source: Illinois Department of Revenue