Despite mounting budget pressure, graduated income tax remains political longshot

SPRINGFIELD — When a progressive Chicago alderperson scolded Gov. JB Pritzker in November over his opposition to Mayor Brandon Johnson’s failed proposal to tax large corporations $21 per employee, Illinois’ billionaire chief executive was quick with a retort defending his progressive bona fides.

“What we need is a progressive income tax, a graduated income tax in this state,” Pritzker told Chicago Ald. Byron Sigcho-Lopez, a democratic socialist who confronted him following a Veterans Day commemoration in Litte Village. “You know that I’ve worked very hard to get that passed.”

Pritzker poured $58 million into the 2020 campaign advocating for a change in the state constitution to allow for an income tax structure that would charge higher rates for higher levels of income.

For nearly six decades, Illinois’ had a flat income tax that charges one rate each for individuals and corporations regardless of income level. But Illinois voters ultimately rejected the proposal to change it, leaving the tax rate at 4.95% for individuals. It only received 46% support, far below the threshold needed to change the state constitution.

In the years since the flameout, Pritzker and Democrats who control the state legislature have mostly shied away from the cause — all while managing to balance the books under the existing tax structure, largely thanks to a strong economy and federal aid in the years after the pandemic.

There are signs, however, that the state’s chronic fiscal challenges are reemerging and likely to be exacerbated by federal policy changes enacted by the Trump Administration. Despite this, it appears the graduated income tax will also be off the table as a remedy, at least in 2026.

Read more: Illinois’ budget on track for deficit as new federal policies create challenges

Pritzker, who put the “fair tax” at the center of his 2018 gubernatorial campaign and served as its chief champion during the failed 2020 referendum campaign, told reporters in November that putting the question on the ballot is “not something that’s been a priority for me going into the next session.”

“I think it’s something that is being talked about by members of the General Assembly — we’ll have to see if it gets proposed,” Pritzker said, reiterating his belief that “a graduated system is better than a flat tax system.”

Pritzker is running for reelection in 2026 and is widely viewed as a potential Democratic candidate for president in 2028.

Renewed push

While Pritzker isn’t putting it at the top of his agenda, some Democrats in the legislature would like to again place a graduated income tax question before the voters.

State Sen. Rob Martwick, D-Chicago, introduced legislation in both 2023 and 2025.

The first was a lone-wolf effort that did not get called before the 2024 election. But Martwick has 17 co-sponsors on his current resolution. And similar legislation in the House, filed by state Rep. Abdelnasser Rashid, D-Bridgeview, has more than two dozen co-sponsors.

The deadline for lawmakers to pass a resolution to place an amendment on the 2026 ballot is May 3.

“I feel like there is this huge appetite for some sort of restructuring of our tax system to make it less regressive (and) to provide relief to middle and working class people,” Martwick told Capitol News Illinois.

Republicans and the state’s business community have long opposed the idea. The 2020 initiative was in part torpedoed by a relentless $60 million ad campaign that was mostly funded by billionaire Ken Griffin, the state’s wealthiest resident at the time.

From a policy perspective, a graduated income tax structure is one of the easiest ways to rectify the state’s chronic structural budget deficit while simultaneously shifting the tax burden to its wealthiest residents, advocates say.

Those points have been reinforced this year amid fallout from President Donald Trump’s One Big Beautiful Bill Act, which granted significant tax relief to the country’s top earners while slashing social spending that states like Illinois have relied upon to balance their budgets.

According to the governor’s budget office, the state is facing a $2.2 billion budget deficit next fiscal year — a number that could grow to more than $5 billion by 2031. The numbers are based on current law, meaning they assume no new spending or tax increases.

Changes enacted in Trump’s signature law — such as a requirement that states spend more on the Supplemental Nutrition Assistance Program and reductions to Medicaid — could exacerbate the state’s fiscal issues.

‘The party’s over’

When the graduated tax amendment failed in 2020, Pritzker lashed out at Republicans and the business community, declaring state tax policy “at a crossroads” and warning “there will be cuts, and they will be painful.”

.But with boosts from federal stimulus funds and increased tax receipts spurred by post-pandemic economic activity, Pritzker and state lawmakers have been able to enact balanced budgets in all but one of his seven years in office, with COVID-impacted 2020 the outlier. And the state has paid off a backlog of bills that had ballooned to more than $16 billion during the height of a state budget impasse a decade ago.

But that boon is over. The past two years, lawmakers had to enact a series of tax hikes and other revenue enhancements to keep the budget balanced.

“The party’s over,” Ralph Martire, the executive director of the Center of Budget and Tax Accountability, told Capitol News Illinois. “And the party’s over because Illinois’ long-term structural problems in their fiscal policy have never been resolved. So the state’s tax policy doesn’t work in a modern economy.”

Martire’s organization has long advocated for restructuring the state’s tax policy, including broadening the sales tax base to include services like haircuts and lawn care. It has also advocated for a graduated income tax structure.

He argues it is simple math — the state needs to capture revenue in growth areas. And in the decades since Illinois enacted an income tax, income has increased most among the state’s wealthiest residents.

“That’s the textbook way,” Martire said. “The ideal thing to do would be to amend the constitution to permit a graduated rate structure. But what you also don’t want to do, because there’s been some advocates of this, is put that rate structure in your constitution.”

Another proposed amendment being floated by former Democratic Gov. Pat Quinn would place a 3% surcharge on income over $1 million. The tax would raise an estimated $4.5 billion and be set aside for property tax relief. Quinn’s effort comes after 61% of Illinois voters signaled support for the idea when asked in an advisory referendum question on the 2024 ballot.

“We have an upside down tax code right now,” Quinn told reporters in November. “We give all kinds of tax breaks to millionaires, and we have higher property tax bills for everyday people, and that’s not the way to go if you want to have a fair society that emphasizes home ownership and affordability and also emphasizes the proper way to fund education.”

Quinn’s populist approach to policymaking has not always been warmly received by state lawmakers, but he insisted that his idea can pass as “it’s a little easier to understand the millionaire amendment than the question that was put on the ballot in 2020.”

Like the graduated plans already proposed, Quinn’s plan would have to receive three-fifths support in the legislature to get on the 2026 ballot.

State Rep. Natalie Manley, D-Joliet, filed legislative language for a millionaire’s tax last year. Her proposal, which does not have any cosponsors, differs slightly from Quinn’s as revenue raised would be split evenly between property tax relief and education funding.

Lawmakers could also take an approach that wouldn’t require a constitutional amendment. This would involve raising the flat income tax rate while also upping refundable tax credits for low- and middle-income taxpayers.

Illinois currently has an earned income tax credit available for people earning up to about $67,000. The state also offers a child tax credit to those who qualify for the state EITC who have at least one dependent child. Such credits have been found to stand up to state constitutional muster.

Martwick said that would be “an acceptable Plan B,” but thinks “we should always try for the best policy first.”

“And I think that would be a constitutional amendment that provides a really good, well thought out, structured plan that allows everyone to contribute and have skin in the game, but in a way that allows everyone to thrive and isn’t overburdening one segment over another,” Martwick said.

Income tax origin

Illinois’ first income tax was enacted in 1969. It was championed by Republican Gov. Richard Ogilvie as a way to plug a budget deficit, reduce reliance on sales and local property taxes and to increase funding for education.

Ogilvie originally proposed a flat 3% to be charged across the board. But state lawmakers eventually settled on 2.5% for individuals and 4% for corporations — a compromise forged with Chicago Mayor Richard J. Daley in exchange for Democratic votes.

The flat rates were necessary to comply with the uniformity clause of the state’s constitution.

When a convention was held in 1970 to create a new constitution, the tax was so new that delegates’ focus was enshrining it into the new document — not messing with the rate structure.

As such, delegates adopted language permitting one rate for individuals and one for corporations.

The individual rate hovered between 2.5% and 3% until 2011, when state lawmakers enacted what was billed as a temporary increase to 5% to help fill a budget deficit and pay down overdue bills. The rate reverted to 3.75% in 2015. But it was permanently raised to 4.95% in 2017 when legislative Democrats and a handful of Republicans overrode a veto from then-Gov. Bruce Rauner to end a more than two-year state budget impasse.

The state’s corporate tax was temporarily raised from 4.8% to 7% in 2011. It went back down to 5.25% in 2015 before being permanently raised to 7% in 2017. Businesses also pay a 2.5% personal property replacement tax, which makes the effective rate 9.5%.

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.