Four other states are moving to a flat tax. The Illinois were right to reject Pritzker’s progressive income tax. – Wireframe stitches

By: Ted Dabrowski and John Klingner

To all those Illinoisans who opposed progressive tax in 2020: you get more reason every day.

Illinois would have become even less competitive at a time when more and more states are increasing their economic competitiveness by moving to a flat income tax.

This year only, four states decided to change its personal income tax from progressive to flat:

  • Iowa passed a law that will transform its progressive tax into a flat tax of 3.9% by 2026.
  • georgia income tax should be converted to a flat rate of 5.49% by 2024.
  • Mississippi will change from a progressive tax to a flat tax next year.
  • Arizonaafter a long legal battle, finally won the right to move to a flat income tax of 2.5% in 2024.

There are also movements in Wisconsin and Oklahoma to make the taxes of these states equally flat.

Both Georgia and Arizona’s transition to a flat structure are not automatic and must meet certain financial conditions to occur. Yet the fact that so many states are moving toward a flat income tax structure — or no income tax at all like Tennessee did in 2021 — should say something to Illinois: they dodged a bullet by rejecting Governor Pritzker’s progressive push.

In contrast, the latest state to transition to a progressive tax structure was Connecticut in 1996. Progressive tax structures are becoming increasingly obsolete.

There’s a downside to so many states adopting a flat or zero income tax: Illinois is losing one of its last competitive tax advantages. For years, Illinois was a flat-tax state surrounded largely by progressive-tax states, including Iowa, Kentucky, Wisconsin, and Missouri.

Flat tax helps offset others punish taxesincluding the nation highest property tax and the second highest in the country gasoline taxes.

But now, this tax advantage has almost disappeared. Kentucky moved to a flat tax rate of 5% in 2018. Iowa will reach a flat rate by 2026. Indiana and Michigan already have flat tax rates of 3.23% and 4 .25%, respectively.

Missouri, while maintaining a nine-band tiered rate structure, flattened out its hooks. The top marginal rate is now 5.4% on income over $8,584, making it similar to a flat tax for most wage earners.

That leaves Wisconsin as Illinois’ only neighbor with a truly progressive income tax.

Illinois’ competitiveness could be hit even harder this year if residents vote for Amendment 1 in the November ballot. This amendment devote to Illinois collective bargaining rights—among the most union-friendly in the nation—in the Illinois Constitution. If that happens, any labor reform that might reduce taxes will effectively be blocked.

Passing Amendment 1 would reverse trends in states neighboring Illinois. All these states with the exception of Missouri passed right-to-work laws and most They succeeded major reforms to limit the powers of their public sector unions.

Illinois has long been a net loser of people to each of its neighboring states. This outflow will only grow as its neighbors increase their competitiveness.

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