Illinois Millionaires Tax Could Fund Property Tax Relief and Public Schools, Study Finds
A new study from the Illinois Economic Policy Institute found that a 3 percent surtax on Illinois residents earning at least $1 million per year could generate billions in revenue for property tax relief or public education funding.
The millionaire surtax would require approval from both lawmakers and at least a majority of voters in an election. Before a millionaire's tax can be implemented, lawmakers and voters would need to approve a change to the state's constitution.
Currently, the state's income tax rate is 4.95 percent. Illinois must levy taxes at a flat rate, meaning everyone pays the same rate regardless of how much money they make. Twenty six other states have graduated income tax structures that allow for higher rates on higher earners.
The state's General Assembly would need to pass a bill to allow for a change from a flat rate to a graduated rate. Sixty percent of members of both the state House of Representatives and Senate would need to approve such a bill.
The amendment to the state constitution would then need to be voted on by residents in an election. If either 60 percent of voters approve the change or a simple majority of all voters who cast ballots approve, the change would be enshrined in the state's constitution.
A similar effort to change the state's constitution to allow for a graduated income tax failed in 2020. Dubbed the Fair Tax Amendment, lawmakers wanted to raise the tax rate starting on incomes of $250,000. Voters rejected the measure 47 percent to 53 percent. That proposal did not come with a promise to dedicate the added revenue to a specific issue.
The study, conducted by researchers at the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign, projects a 3 percent surtax could generate about $3.8 billion in fiscal year 2027 and $4.4 billion by fiscal year 2030.
The researchers proposed three different options for how to spend the new revenue.
Option one would provide a $1,500 rebate to around 3 million homeowners in Illinois. The number of homeowners used in the study is based on the number of general homestead exemptions claimed in the state, according to state data. About 1 million of those homeowners live in Cook County and about 870,000 live in the collar counties. Those rebates would cost around $4.6 billion, according to the report. The rebate amount could increase as revenues increase in future years. The researchers said the rebate would cut the average property tax bill by about 15 percent at first.
Option two would use the revenue to fully fund public school districts in Illinois. The researchers highlighted that state funding of public education in Illinois lags behind other states, which leads to public school districts needing to rely more on property tax revenue. Public school districts usually represent the largest chunk of a homeowner's property tax bill, about 62 percent on average, according to the report.
Back in 2017, state lawmakers required more state funding to school districts by at least $300 million every year in hopes of shifting the burden more onto the state and away from property owners. But there remains an adequacy gap of about $3.1 billion statewide in funding, according to the report. The more than $3.8 billion generated by a millionaire's tax could cover that gap. The remaining amount, more than $600 million, could be given to school districts through property tax relief grants or to make the state's community college tuition free.
Option three would use the money for both property tax relief and public education funding. The researchers propose dedicating between $700 million and $900 million per year to cover the amount of additional property tax revenue school districts require every year. State law limits how much local units of government, like public school districts, can increase their property taxes each year, although there are a number of ways local governments can increase property tax revenue beyond those limits.
A new bill in the Illinois General Assembly could help solve the state's funding troubles. House Joint Resolution CA21 adds 3 percent to the individual income tax rate for incomes over $1 million and requires the resulting funds to be distributed 50/50 between property tax relief and education.
Take a minute to submit a witness slip supporting HJRCA21 by 8 a.m. on Thursday, April 9. The Illinois House Revenue and Finance Committee will meet Thursday, April 9, at 8 a.m. to discuss HJRCA21.
This source of education funding could relieve future budget pressures on other priorities. It is estimated to raise $4.5 billion in the second year.
Governor JB Pritzker pushed back on calls for property tax reform, claiming Republican critics are quite confused. He said increases in state funding to schools in recent years should be reducing local property tax burdens.
Pritzker blamed previous lawmakers and governors for failing to adequately fund schools, which led to an overreliance on property taxes. When he became Governor, he said Illinois had the lowest percentage of education funding coming from the state of any state in the United States.
The reason Illinois has had such high property taxes historically is because the state government got out of the business of funding schools, Pritzker said.
But, Pritzker blamed local school boards for failing to reduce property taxes after increased state funding. You know what? School boards did not take the hint, he said. And so they've continued to ratchet up property taxes over and over and over again. And that has led to a continued very high property tax burden on homeowners across the state.
Pritzker said increased income taxes on wealthy individuals could reduce the property tax burden around the state, to a point. Whatever gets proposed here probably is not going to entirely be dedicated to property relief. But even if it were and was a couple billion dollars, you're still talking about $37 billion of property taxes being alleviated by a couple of billion dollars of state money, he said.
But, Pritzker tried to reduce expectations for significant property tax reductions in the state anytime soon. Look, at this point, if we could just keep property taxes from going up, that would be a huge benefit to people across the state, he said. Instead, every year it seems property taxes just go up and up and up, and we've got to deal with that problem.
I do not think its just a millionaire's tax. If that were to happen that would be the whole answer. It requires local governments, local schools, to take into account that they are getting, at least under my administration, $2.4 billion more every year in school funding from the state already. And that should, at least in part, provide some impetus for keeping property taxes from going up, Pritzker said.
In a 2024 advisory referendum, 61 percent of voters said they would approve of a 3 percent tax on millionaires specifically to provide property tax relief.
The researchers argued that states that have passed similar tax increases on higher earners also saw economic benefits. This was a unique topic that intersects with other policy issues that impact the health and welfare of the state, and that makes it just an ideal issue for us to address, said Robert Bruno, a professor at UIUC and one of the study's authors.
Specifically, the researchers suggested pairing the tax code change with a pledge, what the researchers called a lockbox, to dedicate the new revenue to be used specifically on either property tax relief, public education funding, or both.
They argued that focusing on education and property taxes could help stimulate the state's economy by at least $1 billion and create thousands of jobs over several years.