Illinois should tax retirement income

Republican governor candidate Bruce Rauner created headlines on Friday when he said in a debate that he wouldn’t rule out taxing retirement income as part of an overhaul of Illinois’ tax system.

He said he doesn’t have a position on that right now, but he should. And that position–as with all other candidates–is that all retirement income should be taxed by Illinois. It is, after all, taxed by the federal government. Allowing even wealthy Illinois retirees escape the tax is a cynical and blatant appeal to seniors who tend to vote in higher numbers and who tend to be Republican. (Other GOP gubernatorial candidates are not inclined to tax retirement income.)

Bruce Rauner,

Bruce Rauner,

With Illinois heading into fiscal insolvency, if not already there, there’s no reason that pension income–including social security and military pensions–should be exempt. If the state wasn’t in such dire financial straits, I might think differently. Many other states also exempt retirement income, but their finances aren’t in the toilet, like Illinois’. And a major reason that Illinois’ finances are possibly the worst in the Union are the public pension benefits that are sucking the state treasury dry.

According to

Out of all 41 states with personal income taxes, 37 states have some type of exemption for retirement income.  However, each state has a different mix of income tax breaks for retirees.  Most states exempt certain types of retirement income, but tax others. [Continue reading here for more details.]

In 2011, Senate President John Cullerton, a Democrat, proposed taxing retirement income, and as far as I know, the idea hasn’t gone anywhere since. As the story explains, here is the impact of the possible pension taxation scenarios:

In 2008, Illinois taxpayers received $37.3 billion in retirement income, including pensions, retirement annuities and Social Security, according to the nonpartisan Commission on Government Forecasting and Accountability. If taxed at 5 percent, that amount of retirement income would generate $1.9 billion. That figure would drop to $1.5 billion if Social Security income is not taxed, the commission’s calculations showed.

Revenues would drop dramatically if only the highest retirement incomes were taxed. For example, imposing the tax on everything over $50,000 in pension income would generate an additional $276 million. Taxing everything over $100,000 in pension income would raise just $70 million, said Sue Hofer, spokeswoman for the Illinois Department of Revenue.

Before you rev up your nasty mail, accusing me of hating seniors and “how would I like to pay the tax if I were a senior?” you should know that I’m 72, and I, too, would have to pay the increased taxes.

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  • I agree with you. All income can be spent, saved or invested the same, so it should all be taxed the same. That should include wages, dividends, interest, including interest on government bonds, capital gains, retirement income--everything.

  • i like the idea of taxing retirement income, even though i am over 65 and retired. first as mr byrne points out, illinois is in bad financial shape and needs more money. it's only fair that EVERYONE pay to keep our state solvent. second, seniors and retirees have been voting for the poiticians who create this mess for t thr past 30-40 years. it is only fair that seniors and retrees pay for some of the damage to our state's financial integrity done by the representatives that they collectively elected to positions of power. yes grandma and grandpa, you chose the bozos. you help pay for them.

    third, don't forget that taxes on retirement income also fall on state and local pensions. if you think some state workers are getting fat retirement checks and living high on the hog at taxpayers expense, this is the chance to claw back some of that money. think of former mayor Daley who now gets 3 tax free government pensions, now having to give 5% of those pensions every year.

    Maybe some retirees will choose to move to another state. i say that just means fewer retirees who need Medicare services or who ride @half fare on Metra and the CTA.

  • In reply to ejhickey:

    How Christian of you. You muddy the water by lumping the issue of pension abuse by public officials with the issue of taxing pensions across the board. If fairness is your touchstone, what about corporations passing the buck to everyone else?

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    20% of corporations pay no tax at all. When they pay taxes I will support taxing my retirement income. But, that legislation will never be written.

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