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Home Publications Blogs Beat the Press Be Thankful that Illinois Already Had an Income Tax

Be Thankful that Illinois Already Had an Income Tax

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Thursday, 13 January 2011 06:10

Otherwise the NYT would have told readers that the legislature had supported an infinite percentage increase in the state income tax. Telling readers that Illinois increased its income tax by 66 percent provides little information to most readers, since they are not likely to know Illinois's current tax rate. (This does appear lower down in the article for those who read far enough.) Furthermore, "66 percent" invites confusion with 66 percentage points, which would be a devastating tax increase.

As it stands, the increase in the tax rate was 2 percentage points, from 3 percent to 5 percent. It would have been more informative to readers if this information was provided at the top of the article.

Comments (15)Add Comment
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written by Ron Alley, January 13, 2011 5:48
Dean,

Thanks for the research. I read the piece and asked myself -- what is the Illinois tax rate anyhow? With other things to do, I just shrugged and went about my business.
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written by toniD, January 13, 2011 7:15
The Chicago Tribune did the same thing as the NYT.
Their Lead was the 66% increase which amounted to 2%. Illinois income tax has been 3% for awhile. It is now 5% and it's only for a few years.

You are right that it confused many people, many who don't read the whole articles.
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written by Kick me, January 13, 2011 8:16
Okay, riddle me this: if I live in Illinois and I paid $1,000 in state income tax last year, but next year will have to pay $1,666, by what percentage did my taxes go up?
Another Big Commie Lie
written by izzatzo, January 13, 2011 8:19
This is big commie lie. Any economist knows the base period for measuring a change of any kind is always 100.

For example, when the tax was 1% and then increased to 3%, that's a 300% increase. When it's increased again to 5%, that's an incremental increase of 160% over the prior base value of 3%.

This also explains why tax cuts pay for themselves. Illinois has made a grave error in raising taxes by 160%, when it could have cut taxes in other direction by 300% and paid off its debt entirely.
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written by PeonInChief, January 13, 2011 9:30
My favorite comment on this was that the Governor of Wisconsin was going to invite Illinois businesses to move to Wisconsin to save on taxes--apparently not knowing(!) that Wisconsin's tax rates are higher than tax rates in Illinois with the increase.
another riddle
written by jethan, January 13, 2011 9:34
If last year I paid $10 in Illinois tax and this year I have to pay $16.67 in Illinois tax would it affect my other spending habits?
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written by kharris, January 13, 2011 10:27
Peon,

Oh, no!. The Governor of Wisconsin knows that after a 66% increase, Illinios' taxes must be higher than Wisconsin's!

What Wisconsin's governor has apparently missed is that a temporary tax hike is aimed, at least in part, at generating revenue while minimizing the risk of tax flight. The cost of relocating may be worth it for a certain number of firms if the tax increase is permanent, but for far fewer firms if the increase is temporary. The longer a firm takes to make the decision, the less likely to move is to pay for itself. That's true even if there is an extension of the tax hike at the end of the first period. It's actually a pretty clever little manipulation.
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written by Chris M, January 13, 2011 11:10
Yeah, this percent of a percent stuff is stupid. Another thing financial journalists like to do is to invert the order of things. "Illinois' income tax increased to 5% from 3%". Annoying!
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written by PeakVT, January 13, 2011 12:37
Okay, riddle me this: if I live in Illinois and I paid $1,000 in state income tax last year, but next year will have to pay $1,666, by what percentage did my taxes go up?


Riddle me this: after a $600 increase in your STATE income taxes, how much did your total after-tax income go down by?

(Answer: $1000 in taxes at 3% implies about $33,000 of AGI, so the total reduction in after-tax income would be less than 3%. [The exact percentage depends on federal taxes, deductions, credits, blah, blah, blah, but you get the point, right?])
IL adopted the SimCity tax revenue strategy
written by ottnott, January 13, 2011 12:56
kharris wrote:
The cost of relocating may be worth it for a certain number of firms if the tax increase is permanent, but for far fewer firms if the increase is temporary. ...It's actually a pretty clever little manipulation.


Heh. I remember doing that on an old version of SimCity. You could raise plenty of revenue with a one-year boost in tax rates without killing your approval ratings.

It will be interesting to watch the outcome of Illinois' revenue-raising approach and compare it to outcomes in the many states (CA) adopting the austerity approach.

I wasn't expecting to see any non-austerity cases to use for comparison, so it is nice to have one. I hope IL moves ahead wisely.
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written by PeonInChief, January 13, 2011 1:07
California, unfortunately, has no choice but to adopt the austerity approach, since we have to have 2/3 of the Legislature vote for tax increases, and the Democrats are a couple of votes shy of that.
The Press is Neither Stupid nor Biased by Ideology
written by Floccina, January 13, 2011 3:58
Yes that was my first thought when I heard that 66% figure. What was the tax before the increase. Once again is shows that the press is neither stupid nor biased by ideology but is focused on attracting attention so that they can sell ads.
yet another riddle
written by fred, January 13, 2011 9:52
Suppose I am retired and planning to move to Florida anyway and my AGI is $60K, so my taxes go from $1800 to $3000. Is $1200/year a big enough incentive to push to a fence-sitter like this to get going on their planned move out of state?

Suppose I have $1,000,000 of capital gains to realize due to the recent stock market run-up, so that the incentive is more like $20K (I'm not sure if Illinois taxes capital gains as income)? Is that a big enough incentive?

I have plenty of anecdotal evidence of rich retirees leaving California to establish Nevada, Washington, Florida or Texas residence, precisely because of the high CA tax rates.
EVP, research and portfolio management
written by Juli in St.Louie, January 18, 2011 2:54
Local newsers also jumped on that exciting news speculating that Illinois companies would be moving across the river to Missouri,Land'O Low Taxes:only 6%. Wisconsinites aren't the only knuckle-draggers!
NYT gaffs it on flyover country, again
written by Scott, January 18, 2011 3:09
Illinois income tax was 2.5% until the late 1990s, when a "temporary" increase raised it to 3% where it remained. Few people have any illusion about the current "temporary" measures.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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