No, Virginia, Illinois Is Not a Low-Tax State

Published December 1, 2004

The Springfield-based Illinois Policy Institute has released a policy brief which, in its own words, debunks the “myth that Illinois is a low-tax state.”

Among those who have said Illinois is a low-tax state are local political heavyweights such as U.S. Senator-elect Barack Obama (D-IL), who gave the keynote speech at the 2004 Democratic National Convention and easily won the November 2 general election for a seat in the U.S. Senate, and the Illinois Tax Federation.

But the facts, according to the report issued October 14 by the Illinois Policy Institute, indicate Illinois businesses and individuals are heavily taxed when one includes federal taxes and local property and excise taxes.

“Even as the Fiscal Year 2005 state budget plans to roll back the taxes and fees that have led to Illinois’ decoupling from the national economic recovery, there are still those who would have us believe that Illinois is a low-tax state,” said Mike Van Winkle, a policy analyst at the Illinois Policy Institute and the study’s author.

“So common is the refrain [that Illinois is a low-tax state] that media and the public interest groups hardly even acknowledge it. Even the Taxpayer Federation of Illinois–a supposed tax watchdog group–has bought into this myth by supporting higher taxes in order to close budget gaps,” Van Winkle said in the report.

Dueling Conceptions of Tax Burden

According to the Illinois Policy Institute report, the “low-tax perception” is buttressed by data released earlier in 2004 by the Federation of Tax Administrators (FTA), which ranked Illinois 45th in state taxes, when the tax burden is measured as a percentage of personal income.

“The truth is that [the FTA] report offers an incomplete picture of Illinois’ tax situation,” said Van Winkle. “However honest the error might be, it is imperative that policymakers take into consideration other measures of this state’s tax burden before deciding on a policy. In fact, the FTA data isn’t consistent with other, similar studies by different organizations.”

For instance, in 2003, the Washington, DC-based Tax Foundation ranked Illinois 29th, not 45th, in total tax burden. In 2004, the Tax Foundation ranked Illinois 32nd in state and local taxes.

According to Van Winkle, the FTA data took into account only specific “state taxes.” Other taxes, such as property taxes and excise taxes, are considered “local taxes” in the FTA analysis and are not included in the state rankings. Illinois ranks 10th highest nationally in per-capita property taxes. At the local level, Illinois is actually a high-tax state.

“Even more troubling is the fact that measuring local tax burdens as a percentage of personal income can itself be problematic,” Van Winkle said. “Results tend to be distorted for states with large populations and high wages.

“Take, for instance, a traditionally thought-of high-tax state like California,” he continued. “Looking at state and local tax burden alone, California appears middle of the road, ranking 26th in the nation. Yet, once federal taxes are accounted for they’re the 10th most heavily taxed state out of 50. Notably, their state and local tax burden is only a 10th of a percentage point higher than Illinois’.”

Noted Van Winkle, “Once we factor in federal income taxes, Illinois’ residents have the 14th highest tax burden in the nation.” The 2004 Tax Foundation report has Illinois ranked 13th highest after factoring in the federal tax bite.

Higher Salaries Hit Harder by Taxes

According to the Tax Foundation study, “Generally, high-income states rise [in ranking when federal taxes are added to the state and local total] because, with their high costs of living and commensurately higher salaries, they are hit harder by the progressive federal income tax.” This is consistent with the Illinois data.

“Taxes in Illinois may not be what they are in [high-tax] Connecticut and California, but in no way is Illinois a low-tax state,” Van Winkle said. “Due to our relatively high tax burden and our overly complex tax code, tax increases are not an option for Illinois as long as it plans to have a nationally competitive economy. Instead, Illinois should simplify the current code to make the state a friendlier climate for business.

“Economic growth and frugality from Springfield are the only long-term solutions to our budget woes,” said Van Winkle. “Budget deficits should be filled with politicians’ pet projects rather than the cash of hardworking citizens.”

John W. Skorburg ([email protected]) is associate editor of Budget & Tax News and a visiting lecturer in economics at the University of Illinois-Chicago.

For more information …

The Illinois Policy Institute tax brief can be found online at

The Tax Foundation’s 2004 tax burden study can be found at