ILLINOIS – With an effective tax rate of more than 15 percent, Illinois ranks 51st in the nation – the last of all 50 states plus the District of Columbia – for state and local tax charges. At the same time, Illinois ranks midfield in terms of taxpayers’ return on investment.
This comes from Wallethub’s personal finance website, which aggregated real estate, vehicle properties, income and sales, and excise taxes to create their rankings. The lowest state and local tax rate in the nation was Alaska at 5.84 percent.
This is how the categories are broken down in Illinois:
- Average Property Tax: $ 4,942, Rank: 50th
- Effective basic vehicle tax rate 0 percent, rank: 1st
- Effective income tax rate: 2.9 percent, rank: 13th
- Average Income Tax Paid: $ 18.34, Rank: 39th
- Effective sales and excise tax rate: 4.29 percent, rank: 27th
- Average Sales Tax Paid: $ 2,712, Rank: 25th
- Effective overall tax rate: 15.01 percent, rank: 51
The average Illinois household pays nearly $ 9,500 in state and local taxes each year, with Illinois gas taxes driving the state to the top. Illinois doubled its gas taxes in 2019 and has the third highest in the country.
State and local tax burden imposed by the state:
The state’s votes last year declined to approve a tiered income tax that would have cut taxes for lower-income Illinoisans and increased taxes for those who earn more than a quarter of a million dollars a year.
“It is wrong that I would pay the same tax rate as someone who makes $ 100,000, or worse, the same tax rate as someone who makes $ 30,000,” Governor JB Pritzker said at the time, warning of cuts in services or tax increases for everyone if the measure fails.
However, critics said they did not trust state lawmakers to avoid wasting the money and pointed to high profile corruption allegations against Illinois House spokesman Mike Madigan and others, as lawmakers could not be trusted as evidence.
Surprisingly, countries with low income taxes don’t always pay lower taxes overall, the report said. For example, Washington state has no income tax, but residents pay an effective sales tax of 8.65 percent, which brings their overall tax burden down to nearly 12 percent. The effective tax rate in Texas is even higher, although there is no income tax and lower sales tax – the Lone Star State has some of the highest real estate taxes in the country.
Red states – those that voted for Donald Trump in the 2020 presidential election – usually pay lower taxes than states that voted for the Democratic candidate. But blue states don’t always see better government services due to higher taxes, Wallethub noted.
The website categorized all states and DC into five categories: Education, Health, Safety, Economy and Infrastructure, and Pollution.
So Illinois ranked in these categories:
- Education: 19
- Health: 23
- Security: 23
- Economy: 26
- Infrastructure and pollution: 31
Wallethub found that better service depends on much more than just paying more taxes. One of the states with the best return on investment (ROI) is Florida – with one of the lowest state and local tax rates in the country – but also Nebraska with one of the highest.
Taxpayer ROI by federal state:
Rebecca Hendrick, a professor of public administration at the University of Illinois at Chicago, told Wallethub that many states with low tax burdens – such as Alaska, North Dakota, Texas, and Oklahoma – rely on external sources of income such as oil taxes and gas wells to lower taxes balance the residents while most local governments do not have that luxury.
“Governments like Detroit, Flint, East St. Louis, Newark, Buffalo and many other small governments in the US have very little capacity to generate their own revenue,” she said. “I would describe 6-10 suburban governments in the Chicago metropolitan area as insolvent because of the decline in population, property values, economic base, etc. Their tax burdens are quite high and the level of service and quality are low because they cannot generate income on the other hand, governments with affluent economic and tax bases can have higher tax burdens because their citizens demand it and are willing to pay for it. Their high tax burdens fund better government services. “
Hendrick said a lack of control and fighting among elected officials increases costs and leads to wasted taxpayers’ money. She also criticized lawmakers for increasing the tax burden without increasing services.
“They do this by transferring current obligations to future taxpayers, such as underfunding of pension obligations, inadequate maintenance of existing infrastructure and the so-called ‘scoop and toss’ of current debt obligations for the future (by refinancing old debts) “said Hendrick. “This means that current taxpayers are paying for past obligations, which reduces spending on ongoing services.”
Red states also receive more money from the federal government than blue states. For example, Wyoming received $ 1.25 billion – about 80 percent of its annual budget, according to the Associated Press – from the first COVID-19 relief package passed that summer, although there were fewer than 600 positive cases at the time, while Illinois received less than $ 100,000 per positive case.
Other federal support for states comes in the form of federal contracts, grants, and public subsidies.
According to Wallethub, Illinois was one of the least dependent on the federal government. The states most dependent on the federal government include Alaska, Montana, West Virginia, Mississippi, Kentucky, and New Mexico.