Illinois' flat income tax places it in the 'Terrible Ten'

Illinois is one of the ten most regressive states in the country, according to the nonprofit, nonpartisan Institute on Taxation & Economic Policy. A state is regressive if it requires the poor to pay a greater share of their income in taxes than the rich. In Illinois, the state’s poorest residents—those in the bottom 20 percent of the income scale—pay almost three times as much of their earnings in taxes as the top one percent do.

Illinois’ flat income tax is one of the primary reasons ITEP ranks the state as the fourth most regressive. A flat income tax means the state takes the same percentage of income from everyone, regardless of how much or how little they earn.

Illinois is one of only ten states with a flat tax rate. There are seven states that collect no taxes on individual income. See which states have flat, graduated, or no income taxes in the map below.

Illinois increased the tax rate on individual income from 3 percent to 5 percent in 2011. That increase is set to expire January 1, 2015. Speaker Michael Madigan reports that the House Democratic caucus is almost 30 votes shy of the 60 needed to make what was a temporary increase permanent.

If Illinois fails to extend the tax rate of 5 percent, it will have the third lowest individual income tax rate of any state with a flat tax. According to the Tax Foundation, only Indiana and Pennsylvania will have lower rates, at 3.4 and 3.07 percent respectively.

Illinois depends on individual income taxes for 42 percent of its tax revenue, according to the U.S. Census Bureau. Taxes on individual income bring in more money for the state than any other tax. This wasn’t the case in 2009, when half of the state’s tax revenue came from sales tax. Sales tax revenue has steadily declined since then, though, due to the Great Recession.