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TaxSplaining

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* Not a great way to describe the newly proposed income tax rates

The governor’s proposed tax rates are as follows:

* A decent way to describe the newly proposed rates

• The first $10,000 in net income is taxed at 4.75 percent, resulting in a maximum $475 in income taxes.

• For the next $90,000 in income a 4.9 percent rate is applied, resulting in up to $4,410 in taxes. People claiming $100,000 a year would pay $4,885, $65 less than what they pay under the current income tax law. The average annual income in Illinois is a little more than $56,000, according to the U.S. Bureau of Labor Statistics.

• The next $150,000 of income is taxed at 4.95 percent, which adds up to another $7,425 more in taxes. Someone claiming $250,000 a year in taxable income would owe $12,310, also $65 less than under the current law. More than 97 percent of all income tax returns filed in Illinois claim income of $250,000 or less, according to Pritzker.

• The tax rate jumps all the way up to 7.75 percent for the next $250,000 of income, which could amount to as much as $19,375 more in income taxes. People claiming $500,000 in income would owe $31,685, which is $6,935 more than what they would pay with the current flat income tax rate. […]

Retirees would not be affected because Illinois is one of the few states that doesn’t tax retirement benefits.

And etc.

* Another decent way

The plan proposes dropping the personal tax rate for the first $10,000 of income for single and joint filers to a 4.75 percent rate; income above $10,000 to $100,000 would be taxed at 4.9 percent; income between $100,000 and $250,000 would be taxed at 4.95 percent; income between $250,001 and $500,000 would be taxed at 7.75 percent; and income from $500,001 to $1 million would be taxed 7.85 percent.

* Meanwhile, this is not a great way to explain the governor’s proposed higher corporate tax rate

Under the new tax plan, Illinois would maintain a competitive corporate income tax rate. The proposed 7.95 percent rate, identical to its highest rate for personal income, would fall under the corporate income rates in California and Iowa. The two states levy 8.84 percent and 12 percent rates, respectively.

Wisconsin’s 7.9 percent corporate tax is just shy of Illinois’ proposed rate. New York has the lowest corporate income tax of the aforementioned states, at 6.5 percent.

* Same goes for Gov. Pritzker

“They were paying a flat tax at 7 percent before, they’d be paying a flat tax again.”

Businesses also pay a Personal Property Replacement Tax of between 1.5 and 2.5 percent, depending on the company

Corporations pay a 2.5 percent tax on their net Illinois income.

Partnerships, trusts, and S corporations pay a 1.5 percent tax on their net Illinois income.

So that has to be added to the corporate tax rate, bringing the newly proposed rate to between 9.45 and 10.45 percent, putting Illinois above California.

* Related…

* Unpacking Pritzker’s Tax Proposals: Retail Discount: Stores in Illinois keep a portion of what you pay in sales tax. Think of it like a collection fee, though in state government shorthand it’s called a retail discount. The amount is based on a percentage of what they collect. So the more they sell, the more they keep. Gov. J.B. Pritzker wants to cap that amount to $1,000 per month for each retailer.

posted by Rich Miller
Friday, Mar 8, 19 @ 12:29 pm

Comments

  1. My reaction to JB’s plan has been critical, but not in the same vein as most critical comments: I don’t believe his plan goes nearly far enough. If we’re truly in bad enough shape (and we are) such that the argument is valid for expecting more from the people who are doing the best in the state, then do it, for God’s sake. Gradually increase the tax to 8% (or higher) on the top 20% of earners, and provide meaningful relief for those in the bottom 20%. The rate of the middle 60% can stay where it is, or blend it from 90% to 110% of current. This should provide enough money to meaningfully change the state funding formula and provide significant property tax relief.

    Shared sacrifice. Ideally, it would include retirement income above a certain threshold (40 or 50k). Walk the Walk, JB.

    Comment by Stuntman Bob's Brother Friday, Mar 8, 19 @ 12:44 pm

  2. This is a fair question. If IL capital gains rate is 4.95% and an individual’s passive income makes up 75% or more of his or her money flow of a $1mil or more, how would this millionaires tax work?

    Comment by JustmeIL Friday, Mar 8, 19 @ 12:46 pm

  3. JustmeIL, I answered your question on another thread. This is not Google. Illinois taxes all income equally and always has since we had an income tax. Educate yourself before commenting here or stay out of comments.

    Comment by Rich Miller Friday, Mar 8, 19 @ 12:50 pm

  4. I imagine the great majority of Illinois businesses will continue to have no income tax liability, as owners take any profits as personal income.

    https://www.chicagobusiness.com/article/20140219/NEWS02/140219775/most-illinois-companies-don-t-pay-federal-or-state-income-taxes

    Comment by wordslinger Friday, Mar 8, 19 @ 12:52 pm

  5. The possible pittance we will receive in a reduction of income taxes will be eaten alive by higher property taxes, sales taxes, fees, you name it.

    Comment by Pick a Name Friday, Mar 8, 19 @ 12:55 pm

  6. Good for JB capping the retailer discount. All these big corporations already have software that does all this. They’ve already achieved economies of scale at the $1,000 mark.

    Comment by City Zen Friday, Mar 8, 19 @ 12:55 pm

  7. == The possible pittance we will receive in a reduction of income taxes will be eaten alive by higher property taxes, sales taxes, fees, you name it. ==

    Please explain the basis for this assertion. Thanks!

    Comment by Shamrockery Friday, Mar 8, 19 @ 12:58 pm

  8. ==Gradually increase the tax to 8% (or higher) on the top 20% of earners==

    Earnings can be diminished or impaired.

    Comment by City Zen Friday, Mar 8, 19 @ 1:00 pm

  9. Also might want to mention, especially on the lower end of the spectrum, that the “income” is after taking deductions so a single filer working part-time isn’t paying that amount on their total income, only on the income after deductions.

    Comment by Anonymous Friday, Mar 8, 19 @ 1:01 pm

  10. Rich’s response above is why I enjoy this site.

    No quarter given to those who expend no effort at all to understand.

    Comment by TheInvisibleMan Friday, Mar 8, 19 @ 1:03 pm

  11. StuntmanBob. Excellent points.

    Comment by Blue Dog Dem Friday, Mar 8, 19 @ 1:04 pm

  12. ==Gov. J.B. Pritzker wants to cap that amount to $1,000 per month for each retailer.==

    That seems pretty harsh, considering you’re already hitting them with higher min. wage and they are going to be taking a further hit with the new proposed rates. Pritzker should back off from this one, since it further incentivizes doing as much business as possible.

    Comment by Lester Holt’s Mustache Friday, Mar 8, 19 @ 1:06 pm

  13. Rich:
    I’m a tax lawyer, so a story in Crain’s caught my eye. They’re saying that taxpayers with income above $1 million would pay 7.95% on ALL their income and not just on the income above $1 million. The slides put out by Pritzker’s office are a bit ambiguous in that regard but I think Crain’s just got it wrong. If they are right, then that means the top marginal rate has to be GREATER than 7.95% in order to recoup the taxes on the first $1 million of income paid at a lower rate.

    Here’s an illustration. Supposed Pritzker’s tax plan had two rates: 5% on all income up to $100K and 10% on all income above $100K. Under the Crain’s reading, you’d have to have a higher rate (say 15%) on the second $100K of income to recoup the additional 5% tax on the first $100K of income. That’s now how a graduated income tax normally works. I don’t think that’s what Pritzker meant but I contacted Crain’s and they’re standing by their reading. I’m not a journo so I don’t know anyone to ask in Pritzker’s office but I’d appreciate your take. If Crain’s is right (which I doubt) then Pritzker’s plan requires a marginal rate higher than 7.95%

    Comment by Rarely Posts Friday, Mar 8, 19 @ 1:09 pm

  14. ===will continue to have no income tax liability===

    You can’t get out of the PPRT, though.

    Comment by Rich Miller Friday, Mar 8, 19 @ 1:09 pm

  15. 1/3 of all corporations do file because they make money. Admittedly, tax avoidance is commonplace, but many corps don’t make money and or lose money. The widget company averaged making money six out of ten years.

    Comment by Blue Dog Dem Friday, Mar 8, 19 @ 1:18 pm

  16. Rarely Posts, scroll down this page until you see two stories on that topic.

    Sheesh.

    Comment by Rich Miller Friday, Mar 8, 19 @ 1:22 pm

  17. Misinformation is likely going to help opponents here. Pritzker’s team better be working to ensure that all that info is corrected or updated and be ultra-clear with reporters and the public.

    They’re doing well with the 97%, but the actual rates, despite the truth, are being reported poorly all over the place. Not sure if it’s on Pritzker’s staff, or on reporters, or both.

    Comment by curtis Friday, Mar 8, 19 @ 1:29 pm

  18. I am supportive of the proposed income tax rates even though they will result in an increase in my taxes.
    I don’t want to rewrite the opposition talking points, but the Republicans have for years marketed/protected their wealth against any proposals to increase their tax obligations by casting aside the labels of “wealthy”, “rich” and “business” under the more appealing umbrella of “job creators.”

    Taxing the job creators leaves them less money to reinvest, expand or start new businesses and hire more people for the good paying jobs that are possible when you allow job creators to flourish rather than attempt to punish them and their employees for their success. Spend less money, especially if it is the hard earned taxpayer’s money. Why can’t our state do what every responsible Illinois family does which is to live within their means. Illinois families understand our state doesn’t have a revenue problem, we have a spending problem. Let’s not make things worse by taxing and driving out of business or out of state the job creators that allows hard working men and women across this state to provide for their families.

    Sounds better than, “Stop the Millionaires Tax.”

    Comment by Tommydanger Friday, Mar 8, 19 @ 1:34 pm

  19. === Not a great way to describe ===

    In defense of Paris Schultz and WTTW, that chart is taken almost exactly from Pritzker’s slide show.

    Comment by Amanda Fan Friday, Mar 8, 19 @ 1:35 pm

  20. –The widget company averaged making money six out of ten years.–

    And when it did, your state corporate income tax liability was based solely on Illinois in-state sales, correct?

    I haven’t heard a proposal to change that.

    Comment by wordslinger Friday, Mar 8, 19 @ 1:38 pm

  21. ===that chart is taken almost exactly from Pritzker’s slide show===

    Not really because the chart is clearly identified as “Marginal rates.”

    Comment by Rich Miller Friday, Mar 8, 19 @ 1:39 pm

  22. If it’s so dire, and it is, can’t we tax retirement income? Say 1% over 100k? Retirees use roads and services. Shared sacrifices. Right?

    Comment by Ben Folds 5 Friday, Mar 8, 19 @ 2:01 pm

  23. Ben folds 5 - i recommend you contact Rep Durkin to propose this separate amendment. I will vote for both proposals if they get to the ballot.

    Comment by Anonymous Friday, Mar 8, 19 @ 2:13 pm

  24. “……I don’t want to rewrite the opposition talking points, but….”

    The proposed tax structure raises an additional $3.4 billion. If this is the needed amount then these rates might work, but the conventional wisdom in these parts is that we need more like $11 billion. If the latter number is correct, then isn’t this proposed structure just temporary until a permanent structure can be put in place?

    Comment by CapnCrunch Friday, Mar 8, 19 @ 2:13 pm

  25. –If it’s so dire, and it is, can’t we tax retirement income? Say 1% over 100k? Retirees use roads and services. Shared sacrifices. Right?–

    Sell it. If you can’t find legislative sponsors for a GA vote, start circulating petitions.

    But Pritzker ran and was elected on the basic proposal he announced yesterday. Don’t expect him to do your work for you.

    Comment by wordslinger Friday, Mar 8, 19 @ 2:23 pm

  26. What is the reason the income tax at $1M turns into a flat tax for all income rather than a marginal tax for just the income above $1M? I’ve been looking for some explanation on this, but must be missing it somewhere.

    Comment by Chicagonk Friday, Mar 8, 19 @ 2:26 pm

  27. ===But Pritzker ran and was elected on the basic proposal he announced===

    And he was nominated and elected while publicly opposing a tax on retirement income.

    The people who want a governor - any governor - to break a huge promise like that after less than two months in office are just plain goofy.

    Comment by Rich Miller Friday, Mar 8, 19 @ 2:30 pm

  28. Why can’t our state do what every responsible Illinois family does which is to live within their means.

    There are two ways, or a combination there of, for a responsible Illinois family to live within their means, cut spending or raise income.

    Comment by Steve Polite Friday, Mar 8, 19 @ 2:32 pm

  29. The people who want a governor - any governor - to break a huge promise like that after less than two months in office are just plain goofy. -Rich Miller

    This is why I read your blog…common sense.

    Comment by Anonymous Friday, Mar 8, 19 @ 2:38 pm

  30. Rich. I get it. A politician never broke a promise? I think if people see that brought up, they would pay attention to the issue. We are on here to be informed. The majority of the electorate isn’t. I suppose that’s why no matter who’s in power it’s never real solutions. It’s ramps and can kicking.

    Comment by Ben Folds 5 Friday, Mar 8, 19 @ 2:41 pm

  31. ===I think if people see that brought up, they would pay attention to the issue===

    Yeah, ask Rob Martwick about “conversation starters” like that one. lol

    It’s wrong and stupendously naive to declare this isn’t serious unless a politician flip-flops and does something so politically radioactive he will blow all of his political capital and spectacularly fail and take everyone allied with him down with him.

    It’s not much different than the Tribune’s demand that Pritzker flop on 18 months of promises and embrace Arizona-style pension reform.

    And it’s not much different than business groups’ demands that Pritzker embrace the flat tax and abandon the graduated income tax.

    If you’re serious, you’ll recognize reality. The reality is your idea has no traction. I’d advise you to go out and work it for five or ten years, find a sponsor and see what happens.

    Comment by Rich Miller Friday, Mar 8, 19 @ 2:48 pm

  32. “Why can’t we tax retirement income?”

    If you tax one, you have to tax them all.

    Comment by Mama Friday, Mar 8, 19 @ 3:13 pm

  33. What is the current flat income tax rate?

    Comment by Anonymous Friday, Mar 8, 19 @ 3:18 pm

  34. See…….I think those talking about taxing retirement have specific old timers in mind. If you talk about taxing SSI, pensions–all and any kind, all investment retirement income—well some of those enthusiastic taxers would back off.

    Comment by Anonymous Friday, Mar 8, 19 @ 3:28 pm

  35. It appears that Republicans would like to have the governor make the voters who supported him unhappy by taxing retirement income or increasing the flat tax for everyone.
    This will not happen.

    Comment by Enviro Friday, Mar 8, 19 @ 3:50 pm

  36. Suppose I work two jobs: one for state government, one for a great new venture called East Jackson Street LLC.

    Suppose, by strange coincidence, both jobs pay the same salary, even though my employer is the same.

    Am I going to be able to circumvent the tax rates by filing two separate tax returns? I mean, I wouldn’t want to shed a negative light on my progressive employer.

    Comment by City Zen Friday, Mar 8, 19 @ 3:55 pm

  37. so 95% of the last tax increase remains for all those below $250,00

    Comment by Todd Friday, Mar 8, 19 @ 4:06 pm

  38. ===by filing two separate tax returns?===

    You cannot possibly be that stupid.

    Seriously. Are you that stupid?

    Comment by Rich Miller Friday, Mar 8, 19 @ 4:13 pm

  39. City Zen is losing it.

    Comment by Anonymous Friday, Mar 8, 19 @ 4:20 pm

  40. ==The possible pittance we will receive in a reduction of income taxes will be eaten alive by higher property taxes, sales taxes, fees, you name it.== Is that from the property tax rebate or because the estimated $3.4 Billion in new revenue will ease pressure on school districts to request additional property tax and sales tax moneys?

    Comment by SAP Friday, Mar 8, 19 @ 4:26 pm

  41. I think CZ was going for snark. Sarcasm is a cruel mistress.

    Comment by SAP Friday, Mar 8, 19 @ 4:27 pm

  42. Does JB’s plan count retirement income in figuring out your total tax? It does not tax your retirement income, but possibly taxing your non retirement money at a higher rate, because the retirement income is figured in, for your total income, pushing you into a higher rate. The state presently figures retirement income, with other income and disallows standard deductions, senior deductions, and credit for property tax paid for total income, for single filers of $250000, and married couples of $500000 on state income tax.

    Comment by Anonymous Friday, Mar 8, 19 @ 4:28 pm

  43. ==Seriously. Are you that stupid?==

    Apologies, Friday is when I run my content moderation tests. Should’ve marked UAT.

    Comment by City Zen Friday, Mar 8, 19 @ 4:29 pm

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