By Ted Dabrowski and John Klingner | Wirepoints
The push for a progressive tax is back in Illinois, just four years after being rejected soundly by voters. Its proponents say Illinois needs a more “modern” taxation scheme. That we need a “fair” tax. That we need “progress.”
Those arguments fall flat given what’s happening across the country. Since 2022 alone, eight states have dumped progressive tax schemes in favor of flat tax rates, with Louisiana joining the list just last month. The Pelican State dropped its three-rate progressive structure in favor of a flat 3% going forward. The other seven states to move to a flat tax since 2022 are North Carolina, Kentucky, Mississippi, Arizona, Idaho, Georgia, and Iowa.
Massachusetts (2023) was the lone state to move the other way, becoming the only state to adopt a progressive tax since Connecticut did nearly three decades ago.
The move to flat income tax structures reflects the effort by states to become more competitive economically as well as to offer tax relief to its residents. Some states go even further and refuse to tax incomes at all. Nine states now have zero income tax rates, including high-GDP growth states Florida, Texas, and Tennessee.
Given Illinois’ worsening economic, fiscal and demographic position nationally, any ideas of a move to a progressive tax must be soundly rejected once again by its residents.
The “flattening” of income taxes goes beyond just flat tax states. Many progressive tax states are decreasing their number of brackets in an effort to simplify their tax structure. Most notable is Ohio, which once boasted nine tax brackets in 2010. It’s now down to just two brackets, both with rates below 3.5%. It’s effectively become a flat-tax state.
And other states, like neighboring Missouri, are also practically flat tax states. The Show-Me state applies its top income tax rate of 4.7% to all income above just $8,911. That’s even lower than Illinois’ flat tax rate of 4.95%.
The move by other states toward flat and flatter tax structures is a real problem competitively for Illinois. Illinois’ flat income tax has historically been the state’s only tax-positive feature, considering it’s home to the nation’s highest property tax rates and the 2nd-highest gas taxes. Whatever advantage Illinois has had from its flat tax is being eroded as more and more states go flat.
That’s particularly true at Illinois’ own borders. Indiana has dropped its flat tax rate to 3.0%. Kentucky’s flat rate is down to 4.0%. Michigan is at 4.25%. Iowa has its new flat tax at 3.8%. Even progressive-tax Wisconsin has been lowering its rates, increasing its competitiveness.
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