Illinois’ state, local tax burden highest in Midwest after 2nd-largest increase in U.S.
The effective state and local tax burden in Illinois has risen from 11.2% in 2019 to 12.9% in 2022. It is now the nation’s seventh highest.
Illinois’ effective state and local tax burden is 12.9% of gross state product – seventh-highest in the nation and the highest of any Midwestern state, according to new research published April 7 by the nonpartisan Tax Foundation.
Only residents of New York, Connecticut, Hawaii, Vermont, California and New Jersey suffer higher tax burdens than Illinoisans. Illinois residents are paying higher tax rates than every other Midwestern state and no neighboring state has an effective state and local tax burden higher than 11.2%, paid by Iowans. The national average state and local effective tax burden is also 11.2%
Residents of neighboring Michigan pay the fifth-lowest state and local tax burden at 8.6%. Those in Indiana, Kentucky and Missouri each have effective tax burdens of 9.3% and 9.6% respectively, also among the lowest rates in the nation.
Not only have Illinoisans consistently faced among the highest effective state and local tax burdens in recent years, state and local taxes have also risen more than virtually every state since 2019.
Illinoisans’ state and local tax burden has risen by more than 15% since 2019, behind only Connecticut. In 2019, Illinois’ burden was an estimated 11.2% – 13th highest in the nation – but during the past three years that figure has risen to 12.9%, seventh highest in the nation. The national average has only risen 5.7% during that period, meaning tax burdens have risen nearly three-times as fast in Illinois.
Illinois’ poor state and local tax burden ranking is not because of Illinoisans paying large sums in taxes on out-of-state vacations or on second homes, but rather because of high tax rates within the state.
Just to name a few: Illinois’ property taxes – often the largest tax burden for Illinoisans – are the second highest in the nation; gasoline taxes are also the second highest in the nation; the combined state and average local sales tax rate is eighth highest in the nation. Meanwhile, Illinois’ income tax endured the largestpermanent rate hike in state history in 2017.
Illinois’ hostile tax environment has played a major role in the state’s outmigration crisis that has been the sole driver of 9 consecutive years of population decline, including the largest outmigration and population decline ever recorded in 2021. Illinoisans have historically chosen to leave the state for better housing and employment opportunities, both of which have been made worse by poor public policy in Illinois. Nearly half of Illinoisans have thought about moving away, and they said taxes were their No. 1 reason. Population decline also contributes to the lower economic prospects of the state.
Making matters worse, lawmakers have put Amendment 1 on the Nov. 8 ballot. Amendment 1 would change the Illinois Constitution to grant unions in Illinois more extreme powers than they have in any other state, including the ability to bargain over virtually limitless subjects, the ability to override state law through their contracts, and a guarantee that taxpayers and lawmakers would have an extremely difficult time reversing course.
Should Amendment 1 pass, Illinois’ $317 billion pension debt will continue to balloon as state and local taxes, which are already among the highest in the nation, rise in an attempt to keep up. Spending on vital programs will continue to fall. Illinois’ housing and labor markets are already suffering as high taxes and reduced services make finding a job and living in the state tenuous.
Illinois needs reform that will rein in the state’s cost drivers and deliver services to residents in exchange for their tax dollars. Amendment 1 ensures those challenges will increase.