Economic Policy

Exploration of the intersection of policy and economic trends, public finance, and economic development

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IGPA Experts use cutting edge social science research methods to analyze public policy. Our independent evidence and analysis is non-partisan, data-driven, and based in the best academic scholarship available.
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Ameliorating illinois' structural deficit by bending the cost curve

Authors

  • Richard J. Winkel

Immediate and dramatic cuts in state spending would be painful to Illinois residents who rely on those state programs. Such cuts might spark political protest and be difficult to pass through the legislature. Even assuming that any tax increases are not possible or not sufficient, however, legislators can still address the spending side of the budget by reducing the growth of spending.


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Including retirement income in the illinois income tax base

Authors

Illinois allows individuals to subtract retirement income from the tax base, leaving no state income tax on payments received from Social Security, 401(k) plans, Individual Retirement Accounts, defined benefit pension plans, and virtually any other payment from a qualified retirement plan. Illinois is virtually unique among states in providing such a blanket exclusion.


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Jeffrey Brown is the Josef and Margot Lakonishok Endowed Professor in Business and the tenth Dean of the College of Business at the University of Illinois at Urbana-Champaign. He also serves as a professor of finance and was the founding director of the Center for Business and Public Policy. He is the Director of the Retirement Research Center at the National Bureau of Economic Research (NBER) in Cambridge, MA.  He is a Trustee and chair of the Audit Committee for TIAA, where he also serves on the Risk and Compliance Committee and the Investment Committee. He also serves as a member of the Governing Board of the Center for Audit Quality (CAQ) and as Vice Chair of the Board of Managers of UI Singapore Research LLC. 

 

Brown has published extensively on public and private insurance markets, including articles in The American Economic Review, The Journal of Political Economy, The Journal of Finance, The Journal of Financial Economics, and numerous other journals and books.  He is the recipient of the Lumina Award for Outstanding Research in Insurance and E-Commerce, the Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security, the ARIA Early Career Scholarly Achievement Award, and the RIIA Achievement in Applied Retirement Research Award. He was also named a University Scholar by the University of Illinois in 2011. Brown has edited four books, the most recent of which explores how the Great Recession affected higher education. He is a co-founder and former co-editor of the Journal of Pension Economics and Finance and an associate editor of the Journal of Risk and Insurance. He has served as a consultant to numerous federal government agencies as well as many of the leading U.S. financial services firms. Prior to graduate school, he was a Brand Manager at the Procter & Gamble Company


In The News

A permit trading program for carbon dioxide (Cap and Trade)

Authors

  • Daniel Karney

According to the dictum “tax waste, not work," Illinois could avoid some increase to the personal income tax on productive labor efforts by instead taxing pollution emissions that contribute to climate change. This short paper investigates likely effects of a tax on emissions or an equivalent cap-and-trade permit system with permits sold by the state instead of being handed out for free.


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Increasing the cigarette tax

Authors

This report estimates the revenue and distributional effects of increasing the state’s cigarette excise tax by $0.50 per pack from $1.98 to $2.48. After taking into account the behavioral responses of smokers, Reif estimates that the tax increase would raise up to $175 million per year and reduce Medicaid expenditures by almost $1 million per year. The amount of revenue generated depends on the extent to which a tax rate increase would boost tax avoidance in large border cities like Chicago.


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The sales tax

Authors

In Illinois, the sales tax ranks second in terms of state tax receipts, just after the individual income tax. Illinois’ 6.5 percent sales tax rate is relatively high compared to other states (though some of the collected revenue is returned to local governments). However, when local sales taxes are included, many Illinois locations have some of the highest overall sales tax rates in the nation.


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Business taxes

Authors

Business taxes are often a point of debate in discussions about raising state revenue. Like other taxes, business taxes have implications for administrative efficiency, vertical equity (“fairness”), economic efficiency, and revenue stability. Business tax burdens most often fall on the firm’s owner(s), its customers, its suppliers, or its employees.


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The personal income tax

Authors

  • Therese J. McGuire

The personal income tax in Illinois is the single largest revenue generator for the state ($18.3 billion in 2013). The state imposes a single tax rate of 5 percent regardless of the level of taxable income. In this paper, Therese McGuire presents a brief history of the tax, analyzes the tax using economic principles, describes various policy levers available to decision makers, and evaluates two policy package options in terms of their revenue potential and their capacity to contribute to other policy goals.


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(.PDF 398.53 KB)

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Making the 2011 tax increase permanent

Authors

In January 2011 Illinois temporarily increased the personal income tax rate from 3 to 5 percent and the corporate rate from 4.8 to 7 percent. In January 2015 the personal rate will fall to 3.75 percent and the corporate rate to 5.25 percent. If rates fall as scheduled, the state will have to find other ways to raise revenue or cut spending to cover an anticipated shortfall of about $5 billion each year.


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(.PDF 471.32 KB)

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The "do nothing" option

Authors

The state of Illinois has been on a perilous fiscal course, plagued by annual deficits with no end in sight. Most observers believe that reforms are necessary, but some suggest that the state can continue on the same path without major changes.


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(.PDF 426.28 KB)

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