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Civic Federation: State 'lost' billions in revenue by foregoing taxes on retirement income

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By Cole Lauterbach, Illinois News Network | Apr 3, 2018

A Chicago think tank says Illinois is losing out on billions of dollars in revenue by not taxing retirement income.

The Civic Federation’s report on taxing retirement income says the state could bring in an additional $2.7 billion in revenue if they treated retirement income as taxable at a rate of 4.95 percent, the current rate on wages. Retirees would pay an estimated $4 billion if the state taxed them on a progressive scale.

"Illinois excludes all retirement income from the state’s income tax base," the group wrote in a recent blog post. "Out of the 41 states with broad-based personal income taxes, Illinois is one of three that exclude all retirement income and one of 27 that exclude all federally taxable Social Security income."


The reports authors note that the figures do not reflect potential losses in revenue should retirees decide to move away because of higher taxes.

Retiree Dave Reynolds of Naperville sat at a local diner in Aurora Thursday morning with 60 year-old Tony O’Connell of North Aurora and Joe Martin, also retired.

All three said they were opposed to a tax on retirement income.

“There’s other avenues to increase revenue and other opportunities to reduce expenses,” said Reynolds, who serves as an elected Democratic precinct committeeman in Lisle Township. He said that people are already leaving the state in high numbers and taxing retirement income would likely make it worse.

O’Connell, near retirement, said taxing retirees and pensioners who have worked all their life isn’t the right way to improve the state.

“The Democrats have to be a lot more fiscally responsible than they are to assure the future of the state,” he said.

Martin said focusing on retiree income could foil some Democratic lawmakers’ hopes to institute a progressive tax and would be “focusing on a group that is not well-positioned to bear the burden of a tax.”

An AARP Illinois poll in 2015 of state residents 50 and older found nearly 9 in 10 opposed taxing retirement income.

“It’s not acceptable to hang this on Illinois’ retirees who have worked hard to save that retirement income,” said Ryan Gruenenfelder, director of advocacy and outreach with AARP Illinois. He said the Civic Foundation report calling retirees’ savings “lost” state income is troubling.

“Have they considered the impact of this ‘lost’ revenue when retirees move to a more tax-friendly state?” he asked.

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Organizations in this Story

American Association of Retired People Illinois General Assembly

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