Politics
A ‘Millionaires’ Tax’ Could Raise Billions in Annual Revenue for Illinois: Study
A new study from the Illinois Economic Policy Institute explores how a 3% surtax on Illinois residents earning $1 million or more per year could impact the state.
The study said that surtax (an additional tax above the current state income tax) would generate up to $5 billion in annual state revenue by 2033. That new money could fully fund all public schools in the state while alleviating property tax burdens, the study found.
In 2024 and 2014, non-binding advisory referendums passed with more than 60% of Illinois voters in favor of taxing wealthier residents at a higher rate.
But critics argue such a tax could open the door for increased taxation on thousands of small businesses and potentially fall short of relieving the property tax burden.
Frank Manzo, study contributor and economist with the Illinois Economic Policy Institute, and Austin Berg, vice president of marketing and executive director for the Chicago Policy Center with the Illinois Policy Institute, spoke with “Chicago Tonight” about what a so-called millionaires’ tax could look like in Illinois.
The Study’s Specifics
The study focused on a potential framework for a 3% surtax on anyone making a net income of $1 million or more.
With his team, Manzo studied data collected by the Illinois Department of Revenue. The study found that middle-class and working families pay 5% more toward state and local taxes than households in the top 1% of earners.
The study projects that a 3% surtax on earners making $1 million or more would generate around $3-4 billion in fiscal year 2028 and up to $5 billion by fiscal year 2033.
The Illinois Economic Policy Institute laid out three key policy suggestions as to how Illinoisans could use the funds.
The first option is dedicated property tax relief for homeowners, which Manzo said would take the form of rebates ranging between $1,200 to $1,800 depending on the household. These rebates would be provided in annual checks to lower costs for roughly 3 million permanent residential homeowners who meet the homestead exemption in the state.
The second option is to fully fund all Illinois public schools using the evidence-based funding model, which is currently used in Illinois to fully fund schools to an adequate level by 2039.
Manzo said using funds generated from a potential millionaires’ tax could fund schools in the first year alone, with $3.2 billion allocated for schools and $615 million left over for additional educational grants.
Manzo added that property taxes would decrease significantly if schools were fully funded, since they currently take up a large portion of local property taxes.
The final option suggested in the study is a freeze on school property taxes while providing additional education funding.
For Manzo, it’s necessary to keep the millionaires’ tax on the table as an option for Illinois, adding that about 40,000 households in the state would be subject to the 3% surcharge.
“But on the other end, people who would accrue value are either 3 million homeowners with homestead exemptions, or all property owners through an increase in funding for school districts, oh, by the way, who educate 2 million students — so it’s a small surcharge to pay for a small segment, less than 1% of all taxpayers, to invest in the rest of the population,” Manzo said.
Reining in State Spending
Berg believes the solution lies elsewhere when it comes to bridging the $5.2 billion budget deficit Illinois faces in 2027.
Earlier this year, the Illinois Policy Institute urged Illinois leaders to reign in spending, suggesting the state take on a spending cap that matches the nominal GDP for the state while also strengthening the Budgeting for Results commission to help “lawmakers target waste and prioritize core services.”
Berg said property taxes are the highest taxes Illinoisans pay, singling out a study from Cook County Treasurer Maria Pappas that found Cook County pays one of the largest residential property tax rates in the nation.
Berg said in order to alleviate the property tax burden in Illinois, lawmakers need to target the several loopholes that local municipalities use to circumvent PTELL (Property Tax Extension Limitation Law) limitations and regulations.
Berg added, “(we) need to be able to have voters have a greater say in those property tax bills, and that makes local lawmakers have to make a better case for those rising bills.”
In addition to transparency, Berg believes lawmakers need to reevaluate pensions in the state, which he claims demand significant portions of property taxes.
Berg’s suggestions illustrate what he observes to be a lack of autonomy Illinois residents have when it comes to their local property taxes.
“I think it shows people are really lacking a voice in local government, and that’s one reason that you’ve seen property taxes spiral out of control, and income taxes is not going to fix that,” Berg said. “We have to give local communities more authority.”
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