Second Illinois policy group pushes to tax retirement, AARP pushes back

The Willis Tower (formerly Sears Tower) rises above the city's skyline on November 8, 2013 in Chicago, Illinois. (Photo by Scott Olson/Getty Images)

CHICAGO (Illinois News Network) — A second state policy group has come out in support of taxing retirement dividends in Illinois to help balance the state’s books.

Last week, the Civic Committee of the Commercial Club of Chicago released a report saying the state should tax retirement and pension income to help pay down the state’s backlog of bills. The Civic Federation, another high-profile Chicago-based nonprofit, suggested the same Wednesday, saying it would put another $2.5 billion in taxpayer money into the state’s coffers.

“Out of the 41 states that impose an income tax, Illinois is one of three that exclude all pension income and one of 27 that exclude all federally taxable Social Security income,” the report said. “To raise the equivalent amount of revenue by increasing the rates on the existing tax base would require a hike of approximately 0.50 percentage points in the personal income tax rate and a proportionate 0.85 percentage points in the corporate income tax.”

The Civic Federation says the tax exclusion amounts to the largest tax break the state gives and will only grow over time as the population ages.

But representatives of the nation’s largest public interest group representing seniors warn that the exclusion of retirement in the state’s income tax code is a big reason some retirees maintain residency in Illinois and pay the other high costs associated with living in the state.

“Illinois has the highest property taxes in the nation, the sales tax in many communities is nearing 10 percent,” said Ryan Gruenenfelder, director of advocacy and outreach for AARP Illinois. “We have notified our members and many of them are responding, saying ‘if this happens, I am going to leave the state of Illinois.”

State Rep. Allen Skillicorn, R-East Dundee, has introduced a constitutional amendment that would forbid taxing retirement and pension income.

“The tax-eater crowd certainly wants every tax that they can get,” Skillicornsaid. “I don’t know if either [a retirement tax or his amendment] is going to pass.”

In an October AARP survey, 70 percent of people older than 25 opposed a tax on retirement income.

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