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A reader asks, “How can those of us not paying Illinois income tax say a whole lot about changing it?”

February 22, 2013

I assume my reader is referring to the fact that state pensions are not taxed.

So this is a good question.

Here are four reasons why every Illinois citizen should support a progressive income tax. And why everyone has a right to speak out on the issue.

1. The current system in which the very rich and those who earn the very least are taxed at the same rate is not fair and is poor public policy. Why should a housekeeper at the Hyatt Regency hotel, who barely earns enough to meet her obligations from paycheck to paycheck, pay the same rate of state taxes as Penny Pritzker, the multi-millionaire heiress whose family owns the hotel?

2. The current system of taxation has led Illinois to be among the lowest taxing and lowest spending states in the entire country. The current system does not allow the state to meet its current expenses, let alone address the growing social needs of its citizens. This creates a drag on the entire state’s economy.

3. As for retired state employees who no longer pay state income tax – but did over the course of their careers – the inability of the state to raise adequate revenue is the cause of the $100 billion dollar pension liability. For years the state did not bother to meet their pension payment obligations. It spent our pension money rather than raise taxes. At the same time they were giving tax breaks to giant corporations.

4. Suggesting that current retirees – because we do not presently pay a state income tax on our pensions – should have no voice in public or tax policy runs counter to my understanding of how democracy works.

Perhaps this is a question because we live in Illinois and are not accustomed to democracy.

But we don’t have a poll tax here. You don’t have to pay to speak.

Even though sometimes you have to pay to play.

9 Comments leave one →
  1. Diane permalink
    February 22, 2013 12:48 pm

    Both the Report of the State Budget Crises Task Force(page 12 lead by Paul Volker and paid for with our tax dollars) and The Center for Tax and Budget Accountability recommend taxing 168 special services in addition to a progressive tax. Neither include but rather exclude taxing retirement money. Amazing to me that the state paid for the answer using
    the former chairman of the Federal Reserve but chose to try to do the wrong thing anyway. Perpetuating the stereotype of Illinois Politicians as slimy and greedy. We use to be known for our mobsters until they all went into state government . Any comment Fred?

    • Fred Klonsky permalink*
      February 22, 2013 12:50 pm

      No Diane. I have nothing to add. I think you were very clear.

      • Diane permalink
        February 26, 2013 7:18 am

        Thanks Fred! I figured out the blog response with your help.
        Keep up this wonderful space, but first stay HEALTHY.

  2. Kathryn Setlak permalink
    February 22, 2013 12:59 pm

    It is my understanding that no one pays state income tax on pensions whether they are from the state or elsewhere.

    • Fred Klonsky permalink*
      February 22, 2013 1:12 pm

      Correct.

  3. February 23, 2013 6:26 pm

    No pensions are taxed in Illinois, neither are distributions from 401Ks, IRAs, annuities, etc.

  4. February 23, 2013 6:28 pm

    But it is my understanding that state pensions are taxed by Illinois if one lives out of state.

    • Cindy permalink
      February 23, 2013 7:36 pm

      The retiree must direct TRS to take out the money & send it to the state of residence, if that state has a pension tax. Michigan, for instance, now taxes public pensions of those born after 1945 at 4.25% after the first $20,000, if one is a full-time resident of MI. They had a reciprocal agreement with IL for years which exempted the tax on pensions; but that all changed last year with a new governor and legislature.

      • Rich permalink
        March 27, 2013 6:12 pm

        Cindy, this is the info I have been searching for. What a change for us who now live in MI and have to pay this MI tax. Thanks for the info. Any additional info will be appreciated.
        Rich

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