Tuesday, December 8, 2009
State shifts burden to least
By Jim Broadway, Publisher, State School News Service
Let's say we're starting our
state from scratch. We know we'll need some schools, some police, courts and
prisons, universities, maybe a few state parks. All that stuff costs money. Who
will pick up the tab?
Here's an idea. Let's have a
tax and fee system that puts the greatest burden, proportionately, on those
citizens who have the least income. How could they object? There's none of them
in the room, right?
That's pretty much how we did
it here in Illinois.
The Institute on Taxation and Economic Policy has updated its "distribution analysis" of who pays the
freight for public services provided in the 50 states. Not surprisingly,
Illinois' revenue system is among the most regressive in the nation.
ITEP's fact sheet on Illinois reports that the
one-fifth of taxpayers earning less than $18,000 in 2007 paid an average of 13%
of their earnings taxes and fees in support of state and local public services.
Those earning $18,000-$36,000
that year coughed up 10.9% of their incomes for state and local taxes and fees;
the next fifth, earning $36,000-$58,000, sent 10.1% of that to state and local
Folks in the $95,000-$196,000
range averaged 8.2% in support of public services; those with incomes of
$196,000 to $500,000 paid $6.2%; and the richest 1% of Illinois - whose incomes
averaged more than $2 million in 2007 - contributed just 4.1% to public
services at the state and local level. The wealthiest paid less than one-third
as much as the poorest.
Type of tax determines who
States that rely most on the
personal income tax to fund programs and services - such as Delaware, New York
and Vermont - spread the burden most evenly from high- to low-income groups, as
the ITEP explains. Those relying on property and sales taxes burden most those
who have the least.
Illinois, which ranks among
the nation's leaders in property and sales taxation, has a revenue system rated
as more regressive than every other state but Washington, Florida, South
Dakota, Tennessee and Texas. It is perilous to be poor in Illinois.
Unlike sham "think tanks" such
as the Illinois Policy Institute, which is in fact just an advocacy group for "privatization" and other
conservative causes, ITEP is funded by respected foundations and governed by a
board of public policy luminaries. Also, the data used in this report is of the
"hard" variety, gleaned from accessible state and federal sources.
How did Illinois' system
become so misaligned?
Soaking the poor has become a
Every income tax break for the
bipartisan policy in recent years. It is no longer the exclusive domain of the
Republican Party. Our nation's-lowest, flat-rate income tax made a regressive
system unavoidable, but the tilt has become more severe each year.
wealthy (such as the "tuition tax credit" for the parents of private school
students), every fee increase (such as soaring costs for auto registration and
drivers licenses) and every utility tax increase - all increases unrelated to
each citizen's ability to pay - tilt the burden more toward the poor, as does
exempting luxury services availed of primarily by the affluent from the sales
The implications of a
regressive revenue system go far beyond mere morality, which is easily ignored
by governors and legislators who must cater to the rich to keep campaign
contributions flowing. The effects shape our society in profound ways.
For example, by over-relying
on property taxes and constraining state general revenue (low, flat income tax
rate, narrow sales tax base), state policy widens the local revenue gap among
school districts even as it chokes off the intended "equalizing" effects of the
General State Aid formula.
The GSA was designed to ensure
adequate funding even in the poorest school districts. It was based on a 50%
state share of total education funding. It does not work at the 30%-33% levels
we have seen in the last 15 years or so. The gap in school funding grows.
School quality is a factor in
population movement. As schools with high property tax revenue per pupil grow
in quality, relative to schools with smaller tax bases, folks who can afford to
move into them. This only accelerates the growth of disparities that state
resources increasingly fail to account for.
Illinois' regressive revenue
system hastens the day when Robert Reich's prediction will be realized: the
most affluent 20% will live in gated communities of opulence, isolated in every
way from the 80% who live in third-world conditions of daily struggle.
[Reich, who happens
to be on the ITEP board, drew that horrific portrait of the future of America
in his book, The Work of Nations, published in 1992. It was interesting reading at the time; but
now it's a frighteningly realistic vision of our children's fate.]
Segregation by socioeconomic
status, Reich asserts, shapes the lifestyles of both the rich and the poor,
even as it numbs the sensitivities of the affluent. If we no longer live
together in the same cities and towns, we lose the feeling we are "in it
together" as citizens of the same country or state. Are we there yet? Perhaps
not, but it appears we are close.
ITEP solution: Merge Quinn,
Illinois does not have to
continue falling into a fiscal black hole, the ITEP observes. The structural
deficits of the state revenue system could be addressed, as the Institute reported last month, by combining two proposals already on the public
Gov. Pat Quinn and Comptroller
Dan Hynes, foes in the February 2 Democrat gubernatorial primary, are also
proponents of differing yet complementary tax reform plans. ITEP thinks both
should be enacted.
The Quinn plan would have
immediate benefits. The governor proposes a 1.5% increase in the personal
income tax rate and tripling the personal exemption from $2,000 to $6,000 to
make the flat tax rate less regressive. In fact, 42% of taxpayers would pay no
more - the poorest 27% would even have their tax bills reduced - under Quinn's
Hynes has proposed a graduated
tax rate structure like that of the federal government and most other states.
It would require amending the constitution, however, so its effects could not
be obtained for at least a couple of years. As he proposes it, only the richest
3% of Illinois taxpayers would pay more.
The need for such reform is
great, as even ITEP can see at a distance. The Commission on Government
Forecasting and Accountability estimates the state will have to "close a budget
gap of $13 to $15 billion over the next twenty-one months," ITEP observes.
The General Assembly begins
The word currently circulating
its 2010 session in mid-January. Will legislators see the need and feel the
urgency? Mostly likely, they will not respond to suggestions that they merely
read the ITEP analysis. They do not want to claim knowledge of the crisis.
is that the legislative leaders hope they can avoid any general revenue
increases until the veto session of November, after the November 2 general
elections. If that is the case the state budget for FY 2011 will be a disaster
for all who rely on state support - including schools.
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