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Illinois Falling Short in Reducing Income Inequality

As another year’s tax season comes to a close, Illinois data continues to show that we must work harder to enact policies that reduce income inequality in our state.

 In Illinois, income inequality is high and has worsened over time.

Wage stagnation and tax policy are contributing to the increase in income inequality.

Nationwide over the last four decades, wages have grown for top earners, but not much at all for those at the bottom and in the middle.[3] Furthermore, in Illinois, top earners pay a lower share of taxes.

According to ITEP’s Tax Inequality Index, Illinois has the 5th most unfair state and local tax system in the country. This places an increased burden on the already strained budgets of low-income families. In 2015 in Illinois, families in the lowest income group paid the most state and local taxes as a share of their income (13.2%), roughly double the share that the highest income groups pay.[4]

Total state and local taxes paid as a share of income, 2015

ITEP Tax Graphic

 Source: Institute on Taxation and Economic Policy

Illinois needs new revenue to resolve the current budget stalemate and continue to provide important services to its residents. In looking at the state’s tax system, elected officials should consider the existing income inequality among its residents. Two ways Illinois can reduce the tax burden on working families are by increasing the state’s Earned Income Tax Credit (EITC) and establishing a state child tax credit.  These two measures will help put Illinois on the road towards a fairer tax system and improve the lives of thousands of Illinois residents.

Written by Anna Rowan

[1]Via the Center on Budget and Policy Priorities: EPI analysis of IRS data. Estelle Sommeiller, Mark Price, and Ellis Wazeter, “Income Inequality in the U.S. by state, metropolitan area, and county,” Economic Policy Institute, June 16, 2016

[2]KIDS COUNT Data Center

[3]How State Tax Policies Can Stop Increasing Inequality and Start Reducing It,” Center on Budget and Policy Priorities

[4]Who Pays?” A Distributional Analysis of the Tax Systems in All 50 States, 5th Edition,” Institute on Taxation and Economic Policy

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