Illinois was named one of five states that imposes a state income tax burden of more than $200 on families living at the national poverty level ($23,624 a year in 2013) by the National Center for Children in Poverty, the second-highest in the country. This is in contrast to the federal income tax breaks that are often offered to these same families. The Washington Post points out that this policy might be hurting families’ abilities to grow and move themselves out of poverty
Across the board, Illinoisans currently pay 5 percent of their income in state taxes, regardless of their income, though the rate is scheduled to fall to 3.75 Jan. 1.
The study points out that states’ income tax policies vary widely, especially when it comes to taxing the poor.
From the NCCP:
Notably, some states provide refundable tax credits modeled on federal income supplements to help lift these families out of poverty, including the Earned Income Tax Credit (EITC) and the Child Tax Credit. Other states impose significant income taxes on families in poverty, countering federal efforts to make work pay through progressive tax policy.
These income tax policies can have a major impact on the lives of low-income families, for whom smaller fluctuations in finances can have a bigger impact.
The study looked at which states impose a tax burden on families living at the national poverty level. (It looked at both three-person households with only one adult and four-person households with two adults, incomes adjusted accordingly.) It found that sixteen states tax four-person families at the poverty level, with Illinois being one of just six states where the burden exceeds $200, along with Alabama, Georgia, Hawaii, Montana and Oregon. The state with the highest burden for a family of four was Alabama, at $588.
This graph from the Washington Post shows Illinois’ tax burden on the poor in relation to other states.
Check out this map to see where Illinois falls in relation to its neighbors–the state definitely has the highest tax burden on poor residents in the Midwest.
Illinois was not among the 18 states to tax poor three-person, single-parent households at a burden above $200. Eighteen states gave these three-person families refunds. Check out this map that shows the tax burden distribution among these three-person families. Notice that Illinois’ color is slightly lighter than for the four-person families map:
Many of these states that give out earned income tax credits model them after the federal EITC system, says the study. Illinois offers a state EITC that averaged about 10 percent of 2013′s federal credit.
Other states, such as New York, Kentucky, Arizona and Oklahoma, offer other tax credits to families living below the poverty line. Illinois does not.
The NCCP study advises states to re-examine their tax codes in order to avoid placing an undue burden on poor families. Among its suggestions:
- Revise tax codes to eliminate income tax liabilities for families living in poverty.
- Offer fully refundable state EITCs.
- Offer child tax credits and refundable credits for child care costs.
Gov. Pat Quinn would like to see that 5 percent rate, which was increased from 3 percent in 2011, stay at 5 percent, while Gov.-elect Bruce Rauner has said he would like to see the rate go down to 3 percent over four years. The General Assembly may tackle the issue during the fall 2014 veto session, though the politics of such a move remain uncertain. The idea of a progressive state income tax, mirroring the federal income tax system, has been bandied about but not taken hold in Illinois.
The NCCP says that the policies of some of these states with high tax burdens on poor families are “pushing the working poor deeper into poverty by imposing income tax liabilities on poverty-level earnings,” despite President Obama’s 2013 plea that “no one who works full-time should have to live in poverty.” The study’s authors urge quick changes to level the tax-paying playing field soon.
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