Citizen's Guide to the Illinois State Tax System:
What Every Concerned Illinoisan Should Know

Part III: Tax Reform Options

In this current economic climate, there is increased pressure on Illinois lawmakers to do something about the state's recurring budget woes and the taxation of its most vulnerable citizens. In our full length report, we outline thirty detailed options for the state to consider when considering how to raise revenue, to maintain the same level of revenue, but restructure the system, and how to reduce revenue, but address other legislative priorities.

Frequently discussed in the report is a proposal to "swap" an increase in the Personal Income Tax with a decrease in the Property Tax. Lawmakers have long been urged to do something about long-term fiscal needs and overall tax equity. The solution to many of these issues would be to increase the effectiveness of the Personal Income Tax as a stable revenue-raising mechanism. This can be done in many ways, such as by:

• Adopting a graduated income tax structure, with rates ranging from 2.7% to 4.25%; taxes will be cut for 60 percent of Illinoisans, while raising $1 billion in state revenue. (This option would require a constitutional amendment.)

• Increasing the flat income tax rate to 3.5 percent, while increasing the personal and dependent exemption to $5000; taxes would be reduced for 45 percent of Illinoisans while raising $370 million in state revenue.

• Phasing out personal exemptions for high-income taxpayers with incomes over $128,950; less than 3 percent of Illinoisans would be affected and state revenues would increase by $20 million.

• Extending the state sales tax to food, while introducing a low-income food tax credit;state revenue would increase by $800 million, while better-targeting tax relief to those most in need.