(Editor's note: This article was published first at Illinois Policy Institute)
The typical Illinois family loses $10,463 – over 15% of its income – to state and local taxes, the highest in the nation, according to a WalletHub study.
The study looked the tax rates for someone with the U.S. median household income, who owns a median valued home and other variables to rank states. In Illinois, that comes out to $10,463, the highest in the nation and nearly $3,000 higher than the median state of Massachusetts.
| Illinois Policy Institute
It is also $2,300 more than the Illinois rate in 2017, or an increase of 22%. Illinois had the highest rate then and has kept its No. 1 tax ranking each year.
The study found Illinois state and local governments levy the nation’s second-highest gas taxes. WalletHub’s property tax rankings also show Illinois is No. 2 in the nation. Renters feel this burden by taking on 80-90% of property tax hikes.
Despite being asked to pay more than anyone else, the state has the nation’s worst pension debt. Illinois has 3.8% of the country’s population, but it carries 15.5% of the nation’s pension debt. Taxpayers must eventually come up with $140 billion to pay the state’s unfunded pension promises and another $70 billion for local pensions, or a total liability of $42,600 for each Illinois household.
Those pension dollars eat up funding for core services that residents rely on. From 2000-2020, pension spending grew by 584% compared to a 25% increase for K-12 education while spending on public safety, child protection and other services relied upon by the state’s most vulnerable residents dropped by 20%.
When cities and towns face dangerously high pension costs, they are forced to raise property taxes to cover shortfalls. So, residents pay more in taxes towards past government services and see fewer benefits from current government services for their money. The higher taxes also can force low-income families out of their homes, or out of the state altogether.
A “hold harmless” pension reform plan such as one developed by the Illinois Policy Institute – based loosely on bipartisan 2013 reforms – could help eliminate the state’s unfunded pension liability and achieve retirement security for pensioners. The 2013 reforms were rejected by the Illinois Supreme Court, which is why reform requires a change to the Illinois Constitution and that change needs state lawmakers to place the question on a statewide ballot.