COMPTROLLER'S CORNER How Much Are Illinoisans Paying In Federal Taxes? By Loleta A. Didrickson, Comptroller, State of Illinois

The tax money Americans dole out each year flows into the U.S. treasury to help pay for federal programs. Federal tax receipts totalled $1.2 trillion in 1994. How much of that came from Illinoisans? The estimated federal tax burden for each Illinoisan was $5,390 for fiscal year 1994. This was $662 or 14% greater than the national average of $4,728 per person.

Why were Illinoisans' taxes higher than the national average? Basically, because this state has more Jobs, more people and greater wealth than many of the other states. The federal government is largely financed by income and social security taxes. During federal fiscal year 1994, income taxes accounted for 54% of federal revenues with 37% from social insurance taxes and contributions. In 1994, Illinois per capita personal income ranked ninth among the states. Illinois has one of the higher average federal tax burdens among the states because tax liabilities for both income and social security taxes are based on income.

So how much are Illinoisans getting back from the federal government? Since Illinois has a relatively high federal tax burden and per capita federal spending in Illinois is below the national average, Illinois receives a very low return on its federal tax dollar. In federal fiscal year 1994, Illinois received 75 cents for each tax dollar sent to Washington which was the fourth lowest return on federal taxes among the states.

Illinois receives a relatively small return in federal spending for its tax payments for several reasons. One is Illinois' above average per capita income. But the primary reason federal spending in Illinois falls below the national average is limited federal spending in the state for defense wages and procurement. This reflects the relatively small number of military bases that are located in Illinois and Illinois' manufacturers emphasis on producing for the private sector rather than for the military.

The allocation of federal tax collections among the states is published annually by the U.S. Tax Foundation. A variety of economic statistics such as relative personal income are used to make the allocation. The variation in per capita federal tax burden among the states is quite large. The highest state per capita tax burden — Connecticut ($7,300) was 2.4 times the lowest per capita tax burden — Mississippi ($2,980).

The Tax Foundation's annual study does indicate whether the federal government has a positive or negative impact on a state's economy. States that receive substantially more from the federal government than they pay in taxes receive a net economic boost from the federal government. On the other hand, the federal government serves to drain funds from states, such as Illinois, that only get a portion of their federal tax payments returned.

As the federal government cuts spending in several areas, Illinois may see spending levels equal out with other states that traditionally had higher spending levels because of defense contracts. To be sure, eventually the number of dollars that are sent back to the states will be affected by the new political composition of Congress. •

January 1996 / Illinois Municipal Review / Page 23