Illinois to Tax Retirement Incomes? Another Reason to Leave the State

Although it has been discussed many times in the past, taxing retirement incomes in the state of Illinois may soon become a reality. Illinois is broke. Even with the sales tax at 6.25%, Illinois is still struggling, trying to find ways to meet state pensions and entitlement programs. Instead of finding sound solutions to Illinois debt problem, democratic politicians such as State Senate President John Cullerton are trying to find ways to squeeze even more money out of its citizens. This time the target is what he considers the "rich" retiree.

According to Progress Illinois, S tate 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. The "other state tax rate" he is referring to is the 6.25% increase he voted for earlier this year. Mr. Cullerton talks about taxing retirement incomes on retirees up to age 65, not taxing Social Security, although some other states do this, and only taxing those people with a retirement income of over $100,000. This tax would generate approximately $1.5 billion. If the state were to include Social Security income in this tax, than the state could net $1.9 billion.

As sinister as Mr. Cullerton sounds with his suggestion, there is a more evil villain lurking on the steps of the Illinois capitol and that is the Center for Tax and Budget Accountability (CTBA). Last year they suggested in their "Funding Our Future" report that the line for the adjusted gross income be for those retirees making over $50,000. Based on tax information from the year 2008, a three percent tax on this group of filers would produce $776 million, and five percent would bring in $905 million a year.

Reasons why Taxing Retirement Incomes is not a Good Idea

-The 6.25% tax increase is only in affect for three years. This is a fair tax (if there is such a thing), because it affects everyone. Mr. Cullerton proposes that the retirement tax will help to reduce the newly enacted sales tax. How many times has taxes been reduced?

-Property tax in Illinois is very high compared to other states that tax retirement incomes. Although another argument is that taxing retirement incomes will help bring property taxes down, when has property taxes ever went down.

-According to Bob Gallo, senior state director for AARP Illinois, Governor Quinn has already proposed several cuts to senior citizens including, home-delivered meals, prescription medicine and the circuit breaker program that would take away property tax relief from more than 300,000 seniors and prescription drug aid to 188,000 seniors. The elderly would not only see a tax increase, but many benefits that help them will be gone.

Republican state senators and congressional representatives have argued that with such high taxes, retirees will leave the state and they are correct. My husband and I plan to move to Arkansas in two years. We know that Arkansas already taxes retirement incomes, but their property and sales tax is much lower. They are one of the few states that strive to have a balanced budget by cutting entitlement programs they cannot fund. In the many years I have been visiting this state, I have found that the people of Arkansas take care of their own. What the state does not provide through entitlement programs, the communities do, providing for those in need through monetary assistance, food banks and physical labor.

Sources: aarp.org, Chicago Tribune, Progress Illinois