Democrats Propose Taxing Your 401(k)

By Monique Garcia and Rick Pearson

Illinois Senate President John Cullerton today suggested the state should start taxing the retirement income of senior citizens who are able to afford it.
The state does not currently tax pensions or retirement funds such as 401(k) plans, but Cullerton told a City Club of Chicago luncheon that should take place as part of an overall look at what he said was Illinois' "outdated" tax system.

"It would just be a matter of fairness," said Cullerton, a Chicago Democrat.

Details are still being worked out, but Cullerton said the state could bring in could bring in upward of $1.6 billion a year. Cullerton said the money could be used to provide tax relief elsewhere, whether that be lowering the corporate income tax rate, reworking sales tax rates or some other idea. Cullerton also suggested a means-test to avoid taxing low-income seniors.

Democratic Gov. Pat Quinn today said he hadn't seen details of Cullerton's proposal, but indicated that it should be looked at as part of an effort to achieve tax "fairness."