Investeens

The governor of Illinois signed into law a dramatic (percentage-wise anyway) increase in Illinois' income tax rate. This is the rate that a state collects on the income earned by people who work there, which for the most part will be the citizens of the state. Americans are also subject to the Federal Income Tax, which has substantially higher rates than what the states collect. Some citizens also have to an income tax to their city, such as New York City residents.

Reflecting their hope that the economic crisis will ease at some point, the rate is scheduled to go back down to 3.75% after four years. One can anticipate that if the state is still in financial trouble at that time, the 5% rate will be extended or made permanent. 

The reason the legislature and the governor have taken such dramatic steps is that the state is literally drowning in debt. Its deficit was projected to hit $15 billion before this tax increase was enacted. The governor's office estimates that the rate increase will collect $6.8 billion extra tax dollars, and that this will be enough to balance the state's budget this year. How $6.8 billion takes care of a $15 billion problem is anyone's guess.

Illinois' rate increase should be put into perspective. New York's income tax rate is almost 7% for people making reasonable income. In California, it is 8%. So, 5% for Illinois residents is not out of line. One might ask why Illinois' tax rate was so low for so long. On the other hand, the following states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

See Quinn signs major Ill. tax increase into law