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March 15, 2014

As I often remind you, Illinois is in a world of financial hurt. Liberals say we have a revenue problem, conservatives say we have a spending problem. Both sides make convincing cases for their beliefs.

I tend to be one who says our state needs to trim spending instead of ask for more money from the majority of the population who are working but not getting raises. Our ability to keep paying more in taxes at all levels of government is decreasing along with our yearly decline in real income adjusted for inflation.

I admit I was skeptical when Ralph Martire of the Center for Tax and Budget Accountability came to see me last week, along with Bonnie Cox, president of the League of Women Voters of Jo Daviess County and her husband, John Cox, a lawyer from Galena and a former 16th District congressman.

They came to advocate a bill in Springfield, HR 33/SHCA 40, which, if passed with a 60 percent supermajority, would send a measure to the voters in November asking whether or not to amend the constitution to allow a graduated income tax. The 1970 state constitution requires a flat income tax, which is at 5 percent for individuals because of temporary increase from 3 percent that is scheduled to drop to 3.75 percent in 2015. However, lawmakers may approve an extension of the current rate in the lame-duck session, after the November elections are safely out of the way.

Martire warned that had we stayed at the 3 percent rate, our accumulated deficit at the end of 2013 would have been $25.2 billion, instead of $7.8 billion.

But continuing the flat tax at whatever rate won’t solve the problem, Martire and Cox say. They believe that the state needs more income, and that our state tax structure is out of whack because we rely too much on local property taxes and sales taxes to pay for services. These taxes are regressive, punishing the poor but just an annoyance to the wealthy.
Take education, Martire said. Nationally, local taxes finance 43.7 percent of public education spending, while states pay for 46.7 percent. In Illinois, the state finances just 28.4 percent of education spending. That’s 50th out of 50 states, the place traditionally held by Mississippi!

As a result, they say, our property taxes are way too high, our income tax too low for those with the most ability to pay more. And because many of Illinois’ more than 800 school districts find it difficult to get taxpayers to approve property tax increases, the state’s education future is not bright. Illinois, which has the world’s 20th-largest economy, will not be able to maintain its place in a world that values knowledge and innovation.

Still, our overall tax burden is low — we rank 32nd in total state and local tax burden in percentage of income, according to the Federation of Tax Administrators. Before the temporary tax increase, we were 42nd.

The graduated tax measure that would go to voters this November, assuming it passes in Springfield — a big assumption — wouldn’t contain specifics. Rather, it would just allow legislators to consider replacing the flat tax with a graduated tax. And they would set the rates.

Two models developed by Martire’s group estimate that if Illinois adopted the same rates as Iowa, which range from 0.36 percent to a high of 8.98 percent for those making $67,230 or more, income taxes in Illinois would decline for 56 percent of taxpayers and increase revenue by $6.8 billion.

A different model would raise Illinois income taxes by $2.4 billion, while cutting taxes for 94 percent of taxpayers.

While I concede these ideas make sense — changing our tax structure to lessen the burden on the middle class — I would only support a graduated income tax if it were tied to a mandated reduction in property taxes. Unless a reduction is mandated, the majority of local taxing districts will continue to seek more money every year, regardless of our ability to pay.

And we have nearly 7,000 local taxing districts, more than any other state. I’d also want a limit on the amount that state spending can increase annually, linked to the rate of inflation.

And for that to happen, we would require a fundamental ideological shift in the Legislature and the governor’s office.

Source: Rockford Register Star