With all the talk about people fleeing Illinois to escape the taxes, it’s helpful to remember that for some, it’s a tax haven.
“Illinois ranks among the best 15 states to retire because of its tax policies for older citizens,” reads a Sept. 23 editorial in the Beloit, Wis., Daily News. “That’s why, for example, huge sprawling retirement home developments can be found in Illinois — Huntley is a good example — but not in Wisconsin.”
A June 11 column in the Quad City Times, meanwhile, sizes up the shifting tax climate on both sides of the state line and gives Iowa the overall edge. It notes, however, that Iowa taxes retirement income, while Illinois does not. “For those of us over a certain age, this clearly favors Illinois as a choice of residence,” it says.
Here in Illinois, despite anticipated windfalls from recreational cannabis and an explosion of legal gambling, state and local governments are desperate for more money. Everyone has designs on the estimated $3.4 billion to be generated by Gov. J.B. Pritzker’s graduated income tax — and voters haven’t even approved it yet.
The Chicago Sun-Times recently brought up the perennial sore subject of taxing retirement income. The paper’s editorial board, which supports Pritzker’s tax plan, notes that it would raise hundreds of millions more if applied to higher-income retirees.
“Expanding the state’s income tax to include six-figure pensioners could provide additional revenue that could help Chicago and other local governments that are struggling with underfunded pension plans,” a Sun-Times editorial said.
The Better Government Association explored this unpopular question in 2016, and was soundly thumped for even suggesting it. Here we go again.
Of 41 states that have an income tax, only three — Illinois, Pennsylvania and Mississippi — do not tax retirement income. Many states exempt some retirement income, such as pension or Social Security benefits.
Illinois’ across-the-board break is hard to defend when it seems everything else is on the table: sales taxes, head taxes, “congestion” taxes, real estate transaction taxes, you name it. Groups including the Civic Federation and the Center for Tax & Budget Accountability have supported some form of tax on retirement incomes. In general, they favor taxing higher-income retirees while protecting seniors with modest incomes. That could be accomplished via the graduated brackets in Pritzker’s plan, as the Sun-Times suggests, or through exemptions and other breaks for lower-income seniors.
But politicians know those are fighting words. Rep. David McSweeney, R-Barrington Hills, is the lead sponsor of a resolution opposing any attempt to tax retirement income. Rep. Allen Skillicorn, R-East Dundee, wants to amend the state constitution to prohibit such a tax.
Seniors vote, after all. And when talk turns to taxing their retirement income, they often threaten to vote with their feet: “Florida, here I come!”
But do they really leave over taxes? That’s hard to prove or disprove. Florida is 60 degrees in February and has no income tax, period, so if you don’t already live there it’s probably not because Illinois isn’t taxing your pension checks. Maybe it’s because Florida is steamy from April to October and the cockroaches can fly. Maybe Illinois is home.
Florida used to be mine. But I wouldn’t move back to avoid paying income taxes, because I have too many reasons to stay in Illinois. Reason No. 1 is my son, a first-year public school teacher. Illinois should be more worried about keeping him than me.
The state needs young adults to put down roots, pay taxes and raise more little taxpayers. But too many of their future tax dollars are already spoken for, thanks to the pension debt and other bills already on the books. That’s a real disincentive for them to stay.
Illinois needs to get its financial house in order now. A lot of retirees (and aspiring retirees) could afford to pay taxes on our retirement income, though of course we’d rather someone came up with a better idea. Anyone?
This column was published in the State Journal-Register.