The Rostrum

By DOUGLAS L. WHITLEY
Executive Vice President, Taxpayers' Federation of Illinois

The Illinois corporate personal property tax has always been a legislative and political dilemma. Even the framers of the 1970 Constitution were unwilling to simply abolish the tax without requiring replacement taxes and imposing language which provided overly restrictive limitations. The convention delegates who demanded replacement taxes were concerned that local governments would suffer unless there was a guarantee of replacement revenue. The convention delegates did not hold a monopoly on this uncertainty. Businessmen recognized that the corporate personal property tax had many failings, including inequitable assessment practices and collection difficulties, but there was little initiative to seek change for fear that the replacement tax would be far more costly.

Early attempts to develop replacement legislation only demonstrated the diversity of Illinois business interests. Each segment of Illinois business wanted to pay less and certainly no more than they did under the existing personal property tax. Legislators recognized that no matter what change was made in the tax system, some constituents would benefit and others would suffer. The legislature's constitutional responsibility was onerous. Imposing new taxes is never a popular task. The task was made more difficult because of factionalism in the ranks of business and the lack of a universally acceptable replacement tax plan. Faced with these problems, the General Assembly chose to delay.

The Illinois Supreme Court's decision to abolish the corporate personal property tax was a bold move, one more commonly expected from the United States Supreme Court. The Illinois Supreme Court demonstrated courage, and in so doing forced the legislature and business representatives to abandon the status quo and confront the issue squarely.

The heart of the replacement tax issue has always been the situation of local governments. The legislators and business representatives who constructed the replacement tax legislation were genuinely concerned about local government finance, just as the constitutional delegates were 10 years earlier. Local government officials were apprehensive, fearing their districts would receive less tax revenue under the new system. Yet, replacement is the best thing that could have happened to them. Local governments are no longer dependent on a difficult-to-collect and diminishing tax and can now rely on a simplified, state-collected tax with a proven annual growth rate which far outpaces the former tax. The legislature established the replacement figure at $520 million, which exceeded the expectations of most local government representatives.

The Illinois Constitution dictates the "imposition of statewide taxes" the nature of which necessitates the creation of a state revenue sharing program to distribute the funds. This revenue sharing program will be a significant funding source for decades. Revenue projections suggest that the pool of dollars available for distribution will exceed the amount of revenue available under the former tax.

The replacement of the corporate personal property tax offered a unique opportunity to generate new tax revenues in an anti-tax climate. Nor can it be overlooked that the replacement taxes are imposed only on business. The creation of a new revenue source with the potential to generate discretionary tax dollars for local governments should ease the demands those governments place on state general revenue funds. The opportunity even exists for some local governments to ease the burden of real estate taxes; they could use future revenue growth from the replacement fund to reduce real estate taxes.

The replacement tax package will generate a great deal of money, encouraging government expansion and spending. But as the replacement funds annual balance swells, legitimate arguments

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can and will be made for rate reduction, revision in the determination of base income and tax incentives. Such adjustments might be used to ease the replacement tax liability of individual companies or segments of the business community which assumed substantial increased taxation as a result of the newly imposed taxes. The adjustments can also be incentives for future business expansion.

Given the welter of conflicting needs and responsibilities, the General Assembly passed a reasonable measure. The replacement tax bill is solid conceptually and is the result of significant contributions from all interested parties. It is rare for a legislative undertaking to receive such intense scrutiny and participation.

Now is not the time to fall into the same pattern of distrust that prevailed during the past decade. Time must be allowed for the new tax system to function. The statutes are subject to annual attempts at revision. The distribution process and the desire to impose bureaucratic "strings" to future replacement funds will be subject to the creation of legislative coalitions, as will attempts to reduce the taxes.

Let us not fear the future; rather, let us recognize that government continually changes. There will be new leaders, new ideas and many elections which will shape and mold the replacement tax to reflect changing times. The time and place to debate philosophy and change will be on the campaign trail, the floor of the legislature, and at the ballot box.

30/ October 1979/ Illinois Issues