Photo By Linda Smogor

The Rostrum DOUGLAS L. WHITLEY, President of the Taxpayers' Federation of Illinois and member of the Governor's Tax Reform Commission

WE ARE watching another legislative session where the dominant topics are taxation and spending. But this year is different. The debate concerns a tax increase and not tax reduction. After six years of focusing on limitations, freezes, exemptions, rollbacks and other such legislation, the state's political leaders may well be walking away from a difficult agenda left half finished. Much has been accomplished:

• While James R. Thompson has been governor, the Illinois legislature has provided more tax relief than at any time in the state's history.

• The combined state and local tax burden has declined from among the highest in the nation to a conservative middle range.

• Perhaps most important, the Thompson budgets have put the brakes on spending by suggesting government should not spend at a pace that exceeds the growth in the state's personal income.

This final point has the best chance of being Thompson's legacy to state government. It is the guidepost by which political leaders can measure the state's ability to pay and honor the public's desire for restraint in government spending.

The problem is that despite the generous grants of tax relief, the state is without a true tax policy — and, more importantly, there is no clear vision of what the Illinois economy or tax structure should look like. Tax law changes over the last six years have been driven more by chance and political expediency than by a conscious effort to restructure the tax mix to help the poor or stimulate economic growth. There has been more planning devoted to preparing for the next Chicago World's Fair than there has been to devising a state tax policy. No one seems to be thinking about what the state's tax structure should look like in 1990.

Establishing a tax policy requires making choices and setting objectives that extend beyond the next election Unfortunately, political people shy away from making, or at least stating, such choices — not because such stated positions might prove incorrect, but because a moving target is more difficult to unseat.

The report of the Governor's Tax Reform Commission is as close to a tax planning document as the public has seen, but it was summarily disregarded. Evidently, the price tag for restructuring appears too high at a time when the demands on state spending are outpacing revenues. And with the governor's call for tax increases, focus has shifted away from changing the state's tax mix, but several problem areas deserve continued attention:

• The sales tax act is an unpredictable patchwork full of partial exemptions and variable rates.

• The property tax laws beg for more than temporary remedies which only complicate administration and confuse homeowners. (A substantial rewrite of the 1939 act may be in order.)

• The individual income tax exemption needs to be increased.

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•The corporate income tax needs stability following major changes in the income apportionment law, yet the opposite is occurring. Many legislative initiatives appear to be aimed at furthering conflict rather than encouraging a constructive or creative environment for business development.

•State and local utility taxes add a significant and growing burden to the high cost of utility service.

•Chicago has become a tax mountain by imposing tax rates that far exceed statewide norms.

No doubt each of the numerous constituent spending groups has a plan for how the new state revenues from the governor's tax proposal should be spent, and the collective expectations will far exceed available dollars; but this is just as well, for the state should not be launched into a new round of escalating spending.

The only counterbalance to escalating spending demands is tax relief, and that may well become part of any tax increase program. There are legislators and taxpayers alike who would accept a tax increase if there was a reasonable expectation that elements of tax reform could be included.

True tax relief necessitates reducing or eliminating a tax without increasing any other tax. The Illinois legislature has pursued this route, but it appears the state has reached the limit on this type of tax relief. To continue true tax relief would require an economic boom or greatly restricted spending; neither seems probable before the end of this legislative session.

Tax reform more likely means tax shifting and thus becomes an important element in the tax program, for it will only raise the ante while shifting an increased tax burden to other taxpayers. For example, revising the property tax laws has a great deal of support among taxpayers and legislators; but the risks are high. The accomplishment of property tax reform that gives any visible relief will require a huge shift of burden in the Illinois tax mix.

This legislative session is unique since the focus is clearly on tax increases, a political event as rare as a total solar eclipse. The political decisions which emerge from a tax increase may have a lasting effect not only on the state's economy, but also determine the future opportunities for reshaping the state and local tax burden.

The state has made great progress in recent years to improve the tax structure and reduce the burden on its citizens, even if it was not accomplished by design.

I do not dispute the state's needs for additional tax revenue to meet some new as well as deferred spending obligations. However, raising taxes should be handled delicately. Such a move should be accomplished with forethought about the state's future tax structure.

The greatest challenge facing Illinois is the revitalization of the urban industrial centers to create new job opportunities. Illinois must be careful not to allow tax rate increases to jeopardize positive economic conditions or state and local initiatives to encourage economic development. Each time state personal income increases 1 percent, it is estimated that both the individual income tax and sales tax collections increase by 1 percent. In addition, a 1 percent increase in state employment would lead to a 7 percent increase in corporate income tax revenue.

Raising tax rates is the easy way to get additional revenue for public purposes. Creating an economic development policy is more difficult, but the results are more productive and less painful. More than a tax increase, the state needs political leaders who are willing to focus on a tax mix and economic objectives that will set spending priorities and not vice versa. It is time for long-term economic planning to become a legitimate political asset and not a liability. □

June 1983 | Illinois Issues | 35