Rostrum

LWV calls for higher taxes with tax relief

THE QUESTION for Illinois in 1983 is no longer whether we can afford to increase state taxes. If Illinois is to meet its obligations to education at all levels, provide a humane level of health and human services and maintain a transportation system that can safely and efficiently move its workers and products, more state money must be raised.

Illinois has the capacity to increase its state taxes. In fact, the financial crisis in which Illinois finds itself today is due, in some part, to a series of tax cuts in recent years. Individuals, businesses and farmers benefit from sales, property and inheritance tax relief measures. These changes in the revenue system mean millions of dollars no longer go to the state, local governments and school districts.

Figures compiled by the Taxpayers' Federation of Illinois for 1981 show that Illinois was average-to-low in tax burdens on individuals and business. In percent of income paid in state taxes (6.08 percent), Illinois was well below the average of the Great Lakes states, the major industrial states and the nation. Only in payments to the utility tax and the property tax did Illinois rank above average. Even so, in total state and local taxes per $1,000 of personal income, Illinois ranked below the average for the nation and the top 10 industrial states.

While Illinois was cutting taxes, other states were raising taxes. Thirty states raised state taxes in 1981; at least 21 states did so in 1982, and more are considering higher taxes in 1983. Of the 10 leading industrial states, only Illinois and Texas have not raised taxes at least once during the past two years. Illinois has not had a major state tax increase in 14 years.

Illinois has paid a price for its low-tax status, however. It is apparent in the economic distress of the public schools and universities, in the reductions in medical benefits for the working poor and welfare recipients, in the losses in a broad spectrum of social services from low-income day care to mental health, in stiff increases in mass transit fares and in the deplorable condition of Illinois roads and highways.

A report from the National Conference of State Legislatures ranks states on spending per $1,000 of personal income. It paints a graphic picture of the results of recent Illinois' "hold the line" budgets. In state and local spending for schools, Illinois ranks 48th in the nation; in state aid to schools, 41st; in state spending for universities, 46th; in state and local spending for health and hospitals, 44th; in state and local spending for streets and highways, 40th. In state and local government employment per 10,000 population, Illinois ranks 47th in the nation.

It is obvious that the Illinois tax climate has not been responsible for the seriousness of the recession in Illinois. There are many factors — not all them controllable by government — that influence business investment decisions. Regional differences in construction, energy and labor costs are generally too large to be outweighed by any differences in state and local taxes. Indeed, a no-new-taxes policy may be the best way to assure that Illinois does not recover from the recession.

The fiscal program supported by the League of Women Voters contains nothing new or dramatic; each element has been proposed many times over by special commissions, academic studies and, most recently, in parts of Gov. James R. Thompson's tax plan. The league's goal is to raise additional state funds in a fair manner, based on ability to pay, for all who live, work and do business in Illinois. The plan is this:

To raise more money, the state should:

• Increase personal and corporate income tax rates. Regardless of the percentage increase, it should be sufficient to allow for a substantial increase in the personal exemption to give relief from the flat rate to the poorest citizens.
• Increase gasoline taxes and fees for license plates and truck permits. Mass transit should share in the increase to give workers economical energy-efficient access to jobs.
• Increase liquor and tobacco taxes.

To provide tax relief, as soon as possible the state should:

• Eliminate the remaining 2 cent sales tax on food and nonprescriptive medicine. This is the most regressive element of the Illinois revenue system.
• Reduce the schools' reliance on the property tax by increasing state support. The property tax is overused for education and has reached its saturation point. Dependency on unequal local resources to make up for inadequate state aid produces inequities for students and for taxpayers.

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To reduce the amount by which taxes must be raised, the state should:

• Disconnect the Illinois revenue system from federal tax law. The substantial business tax breaks of the Economic Recovery Tax Act of 1981 also reduce the income of the state, local governments and school districts. Most of the 21 states that base the calculation of state corporate income taxes on federal taxable income have already decoupled from the federal law or have raised corporate income tax rates to compensate for the loss.
• Reevaluate the patchwork of tax exemptions and eliminate those that do not serve their intended purpose or that contribute to unequal treatment. Home owners and senior citizen property tax exemptions, for example, should become a part of the state-grant circuit breaker program to direct tax relief to the protection of low-income senior citizens.

  The investment tax credit against the Corporate Personal Property Replacement Tax should be repealed. Such incentives have proven to be of little value in promoting business expansion and jobs creation.

• Improve collection and distribution of the property tax. Delays in the receipt of property taxes create staggering costs for local governments and school districts that must borrow money while waiting for tax payments.
• Fund cost-effective programs. Putting people back to work improves both sides of the state ledger. Investments in job training and retraining programs for existing jobs have been successful in putting the unemployed or those on welfare back to work. Low-income day-care programs make it possible for women to get job training and/or to be employed.

It costs $10,000 a year to keep a prisoner in a correctional institution — more than the annual cost of attending a prestigious university. Money spent on rehabilitation and alternatives to incarceration for those who are not a danger to society could result in substantial savings.

The best investment of all would come from increased support for education. Programs and services which are reduced in both quality and quantity will not prepare young people for taking productive places in an economy based on new technologies and international trade relationships. Low salaries for teaching staffs in lower and higher education will neither keep nor attract the best people to educate the citizens of tomorrow.

The state should make bold efforts to improve the structure of government in Illinois such as:

• Provide incentives for creating orderly efficient governmental organizations. Illinois has far too many units of local government and special districts — more by half than in any other state — and the third largest number of school districts in the nation. Many of these exist only because of past or current tax policies. Boundaries have been dictated in many cases by the survey lines of the Ordinance of 1787, not by natural population growth and common interests. The 1970 Constitution directs the General Assembly to implement the processes of governmental change. They are long overdue.
• Reform the property assessment system. Although local property taxes raise more money than the combined revenue of state income and sales taxes, the tax is based on a grossly inequitable and inefficient system for assessing property value. It will take courage — and money — to eliminate the entrenched political system and replace it with one that is professional, efficient and properly funded. Taxpayers should demand nothing less.

To implement these proposals will obviously require more than the returns from a one-year surtax. The first priority must be to weather the current crisis and restore the services that have suffered a series of reductions. But we must also look to the future and make the investments that ensure healthy social and economic development in Illinois.□

May 1983 | Illinois Issues | 39