State Senate President John Cullerton said on Monday he's open to discussing taxing wealthier retirees' income as part of a plan to lower other state tax rates. Illinois is one of 10 states in the country that exclude all federal, state and local pension income from taxation, according to the National Conference of State Legislatures (H/T).
The political hurdles for advancing such a bill in the General Assembly are high. In a statement posted to the State Senate Democrats' website yesterday, Cullerton said, "The only context in which such a policy
could become reality would be
if there was widespread bipartisan support, key protections for
low-income retirees, and that the additional revenue would be used to
lower overall taxes." There is no formal proposal currently on the table.
The senate president talked Monday about taxing retiree income of $100,000 and above, but limiting the tax to those under age 65 and excluding all Social Security income. Since there's no plan or bill in writing, it's difficult to get a read on revenue projections, but Cullerton's staff predicts the state could realize up to $1.6 billion in funds under such a plan. A Department of Revenue spokeswoman told Progress Illinois yesterday that if the state subjected all retirement income above $100,000 to the state's 5 percent individual tax rate, $70 million would be generated annually.
The Center for Tax and Budget Accountability (CTBA) touched on this issue in their "Funding Our Future" report (PDF) last year. CTBA recommended legislators "make the retirement income for tax filers with over $50,000 in Adjusted Gross Income subject to the state’s personal income tax." CTBA found, based on fiscal year 2008 state data, that there were 244,988 filers who earned at least $50,000 and reported bringing in some retirement income. "Funding Our Future" calculates that a 3 percent tax on this group's retirement income would have netted the state's General Revenue Fund more than $776 million in FY08, while a 5 percent rate would have netted $905 million that year.
"[I]ncluding some retirement income in the income tax base will help
Illinois provide significant tax relief to those who truly need it,
low-income seniors and other low-income taxpayers who are struggling to
get by, while generating significant revenue for the state’s General
Fund," CTBA's report states.
UPDATE: Progress Illinois just got off the phone with Ron Baiman, the Center for Tax and Budget Accountability's Director of Budget and Policy Analysis. He noted that CTBA's retirement income proposal in "Funding Our Future" was broader than the DOR revenue estimates discussed above. "You get a much, much smaller number if for example ... you look at individuals with retirement incomes of $50,000 and up, and then you just tax that retirement income above $50,000," he said.