Millionaire Tax Proposal Could Fund Property Tax Relief and Public Education, Study Shows

A new study released this month shows that a 3 percent surtax on Illinois residents earning at least $1 million per year could generate billions in revenue annually. That revenue could be used to reduce property taxes, fully fund public education, or both, researchers argue.

The study, conducted by the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign, found that a millionaire surtax could help the state address major fiscal issues including high property taxes, inadequate school funding, and growing pension obligations.

The Numbers

According to the study, a 3 percent surtax on millionaires would generate approximately $3.8 billion in fiscal year 2027 and $4.4 billion by fiscal year 2030. The researchers suggested pairing the tax code change with a lockbox to dedicate the revenue specifically to property tax relief, education funding, or both.

The proposal has some support among Illinois voters. 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.

Property Tax Relief Option

The researchers proposed three different ways to use the revenue. The first option would provide a $1,500 rebate to approximately 3 million Illinois homeowners. The rebate would cost around $4.6 billion, according to the report. The rebate amount could increase as revenues increase in future years.

The researchers said this option would cut the average property tax bill by about 15 percent at first. Approximately 1 million of those homeowners live in Cook County and about 870,000 live in collar counties.

Education Funding Option

The second option would use the revenue to fully fund public school districts in Illinois. The study highlighted that state funding of public education in Illinois lags behind other states, which leads to public school districts relying more heavily on property tax revenue.

Public school districts usually represent the largest chunk of a homeowners property tax bill, about 62 percent on average, according to the report.

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 millionaires 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 states community colleges tuition free.

Combined Option

The third option would use the money for both property tax relief and public education funding.

Constitutional Requirements

Before a millionaires tax can be implemented, lawmakers and voters would need to approve a change to the state constitution. The researchers noted that any tax on income must be levied at a flat rate, meaning everyone regardless of how much money they make pays the same rate. Currently, the states income tax rate is 4.95 percent.

Two things would have to happen to change the constitution and institute a tax on incomes over $1 million. The state General Assembly would have to pass a bill to allow for a change from a flat rate to a graduated rate, like 26 other states have. At least 60 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 vote to approve the change or a simple majority of 50 percent plus one of all voters who cast ballots approve, then the change would be enshrined in the states constitution.

For context, a similar effort to change the state 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. That proposal did not come with a promise to dedicate the added revenue to a specific issue, though. Voters rejected the measure 47 percent to 53 percent.

Economic Impact

The researchers said the tax could help the state address major fiscal issues like its need for more revenue for schools, pensions, cuts to federal funding, and the relatively high property tax burden on homeowners.

As an example, a 3 percent surtax could generate about $3.8 billion in fiscal year 2027 and $4.4 billion by fiscal year 2030.

The researchers argued that states that have passed similar tax increases on higher earners also saw economic benefits.

What Illinois Needs

Illinois property taxes have risen nearly 27 percent since 2018, from $31.8 billion to $40.37 billion in 2024. State decisions shape some of the largest pressures behind those tax bills. Illinois public schools are primarily funded by property taxes, but school districts are forced to rely so heavily on those taxes in part because the state diverts a growing share of its education spending to pensions instead of classrooms.

From 1996 to 2016, state education spending increased by $5.4 billion. But two-thirds of that growth, or $3.6 billion, went to pensions rather than students. During that time, pension costs grew from just over 8 percent of state education spending to more than one-third. That trend has continued.

Since 2016, general fund payments to the Teachers Retirement System of the State of Illinois have grown 68 percent, outpacing the 55 percent increase in pre-K-12 education spending. Pensions now consume nearly 40 percent of Illinois education budget.

With more state money tied up in retirement debt, school districts are left to fill the gap at least in part with property taxes. Some of those pension obligations were in place before Pritzker took office, but last year he signed a sweetener for Chicos fire and police pensions that will add an estimated $11.1 billion in liabilities by 2055. Roughly 80 percent of Chicago property taxes go to the citys pensions.

The researchers said focusing on education and property taxes could help stimulate the states economy by at least $1 billion and create thousands of jobs over several years.

The Path Forward

The proposal requires approval from both lawmakers and at least a majority of voters in an election. Before a millionaires tax can be implemented, lawmakers and voters would need to approve a change to the state constitution.

Illinois currently ranks first in the nation for the highest number of taxing bodies, with more than 7,000 local governmental units and more than 800 school districts. The number of governmental units is a waste of taxpayers money when they duplicate services.

Pritzker has said the right words about government consolidation even proposing legislation but he has not used his influence and Democratic supermajority to achieve this important goal.