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dir="ltr">Illinois Treasurer Michael Frerichs told attendees of a chamber of commerce event earlier this month that the state needs a progressive income tax because it would allow for the taxation of retirement income above a certain level.
Advocates have been quick to separate the two ideas.
According to the Daily Herald, Frerichs told the group of around 100 people at the Mid-Year Economic Summit hosted by the Des Plaines Chamber of Commerce that passing the progressive tax ballot initiative would allow the state to tax the retirement income of wealthier Illinoisans without hitting middle-class seniors on fixed incomes.
"One thing a progressive tax would do is make clear you can have graduated rates when you are taxing retirement income," he said. "And, I think that's something that's worth discussion."
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The head of Vote Yes for Fairness, a nonprofit advocacy group in support of the progressive tax ballot initiative, responded to Frerichs’ comments to Springfield blogger Rich Miller.
“Vote Yes For Fairness believes all seniors should have the opportunity to retire with dignity after years of hard work, and opposes any tax on retirement income. That’s why we are dedicated to passing the Fair Tax, which does not tax retirement income or make it any easier to implement a tax on retirement income. The Fair Tax is about fixing our broken tax system that allows millionaires and billionaires to pay the same rate as our working families, while updating it to the one used by a majority of states and the federal government that works for all Illinoisans.”
AARP of Illinois released a statement clarifying that voting for the progressive tax in November doesn’t mean enacting a retirement tax.
“AARP Illinois supports the current graduated income tax proposal which, in no way, taxes retirement income or makes it any easier to implement a tax on retirement income,” said Director Bob Gallo. “Illinois state law continues to protect retirement income from taxation, including Social Security, pensions, 401(k)s, and IRAs.”
AARP of Illinois supports the amendment.
Illinois is one of three states that does not tax retirement or pension income.
Opponents of the ballot initiative don’t say the enactment of a progressive tax would immediately institute a tax on retirement income, rather than the allowance of progressivity in the state’s income tax structure would make it politically easier to lift the ban on taxing retirement income if it would only affect a small percentage of the state’s highest earners.
"Flat taxes treat everyone the same and make it harder for lawmakers to raise rates on everyone because voters can hold them responsible," said Adam Schuster, Director of Budget and Tax Research at the Illinois Policy Institute. "A graduated tax allows politicians to decide who should be taxed how much and allows them to gradually increase taxes on smaller segments of the population, eventually hitting the middle class where most taxable income resides."
Polling has shown a slight majority supporting the progressive income tax but taxing retirement income remains unpopular. Polls from AARP show broad majorities of respondents strongly oppose taxing income.
This idea has been a hot-button issue surrounding the coming progressive income tax vote. The Chicago Sun-Times released an editorial last September advocating for passage of the progressive income tax so that high-earning retirees could be added to the state’s tax rolls.
“As the Baby Boomer generation ages, retirement income will grow faster than wages, forcing younger workers to shoulder an increasingly unjust tax burden,” the Sun-Times wrote. “So let’s get on with it and do right by the young people of Illinois. They didn’t create this pension mess. Those of us with a little gray in our hair did.”
There has yet to be any proposals filed in the 101st General Assembly that would include any type of taxation on retirement income, only resolutions opposing it from previous sessions.
Adding a tax on retirement income, no matter what income level, after a successful Fair Tax Amendment in 2020, could subject it to the same criticism as a progressive income tax.