By ALAN J. ORTBALS
During this spring legislative session, an effort was made to put the following question to the voters: Should Illinois’ income tax be changed from flat to progressive? Republicans were able to muster enough votes to keep it off the ballot, which I think is bad public policy regardless of your standing on the tax issue. Basic issues like this should be left to the people — not politicians.
I’m in favor of a graduated income tax but only if it’s part of a sweeping realignment of the overall tax structure. Our state taxes are too low and our local taxes are too high and the two are linked. It’s time to recalibrate that ratio.
Part of the recalibration needs to be a move to a progressive income tax. Our flat rate hurts individuals, hamstrings state government and damages the state’s economy.
A flat tax is regressive, hitting low- and medium-income families harder than those at the top. Families whose incomes are at or below the state’s $61,000 median level generally spend all of their take-home pay on necessities, and unforeseen events like the car breaking down or the furnace shooting craps pose a major catastrophe.
Every dollar taken from them in taxes is a dollar that would have otherwise been spent on goods and services. And that translates into reduced sales for business owners, lessened demand for workers and lower pay for employees.
And it’s one of the main reasons the state has dug itself such a deep fiscal hole. The 3 percent income tax rate that Illinois had for years hadn’t been enough to pay the bills for decades. Our governors and legislators papered over that gap by borrowing from the pension fund to cover the shortfall in the general fund. That went on until they couldn’t look away any longer. It was necessary to raise the income tax rate to 4.95 percent but that exacerbated the problems delineated in the previous two paragraphs.
A flat income tax rests more heavily on the people who have seen little wage growth over the last 30 years. State revenues have been stagnant as well. The rate hike won’t change that.
Of the 41 states that levy an income tax, only eight have flat rates so switching to a progressive structure would bring us into the mainstream. It would also provide a more stable fiscal basis for state government while reducing the burden on those who can least afford it.
But, while making that change, we need to reduce property taxes. Illinois has the second-highest property tax rate in the country. That’s partly because state taxes have been so low, and money to support cities and schools, etc. has had to come from local sources. But it’s also because we have way too many local governments. Illinois leads the nation in this category with nearly 7,000 units of local government, 1,800 more than the runner-up, Texas, and four times more than Florida which has 6 million more people than the Land of Lincoln. We need to consider eliminating some and consolidating others.
For example, Illinois has 1,431 township governments. Florida has zero. The funding to pay for townships comes primarily from local property taxes, with the secondary source of revenue being the state. Of the property tax bill that I recently paid, 7 percent went to township government. Could we do without township government and consolidate those functions under the county?
We also have a lot of school districts — more than all but two states, California and Texas, and their populations far exceed ours. There are more than 200 single-school districts in Illinois and this is a huge waste of resources. An analysis done by the Chicago Tribune showed that single-school districts in the Chicago region cost taxpayers $2,000 more per student than multi-school districts, and single-school districts in Downstate Illinois cost taxpayers $600 more per student on average. Statewide, single-school districts spent $230 more per student on administrative costs than multi-school districts. Couldn’t we consolidate many of these districts and reduce redundant overhead and administrative costs?
Eliminating townships and consolidating school districts would be a beginning but more will be needed. To get in line with surrounding states, we need to cut our property tax burden by half. To get there we’ll need to cull the herd of local governments and those that remain will need more help from the state.
Alan J. Ortbals is president and publisher of the Illinois Business Journal. He can be reached at [email protected] or (618) 659-1977.
By ALAN J. ORTBALS