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CHICAGO - If Illinois approved a 3% surtax on residents who make at least $1 million per year, the new revenue could provide significant benefits to the state, like curtailing property tax increases and better funding its public schools, according to a new study.
The millionaire surtax could generate billions of dollars in new revenue each year, according to the study conducted by researchers at the Illinois Economic Policy Institute (ILEPI) and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign, which was released this month.
Such an idea appears to have popular support in the state. In a 2024 advisory referendum, 61% of voters said they would approve of a 3% tax on millionaires specifically to provide property tax relief.
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.
"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.
Before a millionaire’s tax can be implemented though, lawmakers and voters would need to approve a change to the state’s constitution.
How to pass a millionaire’s tax
The Process:
First, a millionaire tax can only be implemented with a change to the state’s constitution, which requires that any tax on income be levied at a flat rate, meaning everyone, regardless of how much money they make, pays the same rate.
Currently, the state’s income tax rate is 4.95%.
Two things would have to happen to change the constitution and institute a tax on incomes over $1 million:
- The state’s 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% 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% vote to approve the change or a simple majority (50% plus one) of all voters who cast ballots approve, then the change would be enshrined in the state’s constitution.
For context, 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. That proposal did not come with a promise to dedicate the added revenue to a specific issue, though. Voters rejected the measure 47% to 53%.
If the tax change is approved, the researchers proposed three options for how to spend the new revenue. The researchers detailed revenue projections based on the specific tax increase on millionaires. As an example, a 3% surtax could generate about $3.8 billion in fiscal year 2027, and $4.4 billion by fiscal year 2030.
How should Illinois spend the money?
By the numbers:
The researchers proposed three different options for a "lockbox," to basically use the money to provide property tax relief, enhance funding to public pre-K through 12 school districts, or a combination of both. Below is a simplified explanation of each option:
Option 1: 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% at first.
Option 2: Use the revenue to fully fund public school districts in Illinois.
The researchers highlighted an often-repeated data point 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% 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.
So, 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 3: 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 around that law. Still, using revenue from a millionaire’s tax to essentially offset those increases would allow school districts to hold the line on property taxes.
The state could also use about $50 million per year to add to school funding. That way, by 2035, Illinois’ public schools would be fully funded as required by that 2017 law change.
Any remaining funds could be deposited into the state’s "Property Tax Relief Fund."
Economic impact of millionaires’ tax
Dig deeper:
The researchers also detailed the impact each of the three options would have on the state’s economy by the year 2030.
Option 1 (property tax relief) would boost the state’s economic activity by about $1.6 billion and create about 12,000 jobs.
Option 2 (more education funding) would boost economic activity by $3.6 billion and save or create about 25,000 jobs.
Option 3 (both) would add about $1 billion to the state’s economy and create about 7,000 jobs.
But won't millionaires just leave Illinois?
The other side:
One of the key criticisms of such a policy is that higher taxes would push higher earners to leave Illinois for states with lower taxes.
Austin Berg, of the Illinois Policy Institute, a nonpartisan research organization, argued that while a millionaire’s tax "might sound appealing to some," it could come at a cost. He argued on X that Illinois has lost nearly 1 million taxpayers to other states over the last decade and the group leaving the fastest was those making more than $200,000 per year.
"This is a bad idea at a bad time. We can’t afford to keep losing people and investment to other states," Berg wrote.
The study on a millionaires’ tax addressed this concern, arguing that "taxes have been found to have very little influence over migration patterns," according to previous research. A 2016 study found that millionaires tend to move at a lower rate than the population as a whole (2% versus 3%). It’s lower-income individuals who tend to be more likely to move due to factors like better job opportunities.
The researchers said millionaires are more likely to be married, have children, and have business and interpersonal ties to their state, which are all seen as reasons why they would be less likely to move. They also pointed to other states like New Jersey and California, which saw few residents earning at least $1 million leave after those states raised taxes on higher-income earners.
Additionally, when the researchers calculated their projections of how much money a millionaire’s tax could raise, they assumed a certain percentage of millionaire residents would leave the state, so any outmigration was accounted for in their study.
To learn more, you can read their full report here.