Skip to main content
IMA Tax Policy Blog

Illinois Lawmakers Consider Progressive Income Tax

If enacted, would increase taxes on 61 percent of Ill. employers — By Richard Borean, the Tax Foundation …

Illinois lawmakers are considering several tax reform options that would increase taxes on the majority (61 percent) of the state’s employers, according to a new analysis from the nonpartisan Tax Foundation.

Proposals to move the state’s income tax system from a flat rate on all income to a graduated rate system, with top rates ranging from 8 to 11 percent, would negatively impact businesses that file taxes via the individual income tax and not through the corporate income tax.

The study details the proposals, and explains how different industries and Illinois’ business tax landscape would be affected. The key findings include:

Sixty-one percent of employers in Illinois are pass-through entities, meaning they pay business taxes through the individual income tax. Implementing the graduated rate structure would increase taxes on many of these businesses.

On average, 38 percent of employment at businesses with at least one employee are pass-through entities in Illinois.

Share of pass-through employers varies based on industry, with the highest concentration occurring in the construction sector. Other highly-impacted industries are professional, scientific, and technical services; agriculture, forestry, fishing, and hunting; administrative and support and waste management services; and real estate and rental and leasing services.

Pass-throughs tend to be smaller in size, with the majority of pass-through employers employing less than ten people. Small businesses’ performance in Illinois has lagged when compared to the rest of the country, and hiring prospects have worsened since last year.

The Illinois economy is underperforming in comparison to other states in the region and the country as a whole. Experts express caution over using taxes as a solution to the state’s large and rising pension debt.

“With the state still in recovery mode after the recession, the effect of taxes on Illinois’ businesses should not be understated,” says Tax Foundation economist Liz Malm. “It’s crucial that lawmakers and taxpayers understand that increased individual income taxes would inevitably increase taxes on small businesses and employers throughout the state”

Report: Moving to a Progressive Income Tax Would Increase Taxes on the Majority of Illinois Employers

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.