FISCAL IMPACT OF RECENT STATE AND
FEDERAL TAX LAW CHANGES

The co-chairmen of the Illinois Economic and Fiscal Commission (IEFC) recently released a report by the commission's staff showing that during the current fiscal year, state and federal tax relief measures with calculable costs will trim Illinois' tax base by more than $1 billion.

"This report is the first formal assessment by the commission of the impact on Illinois' tax base of all the tax relief initiatives enacted at the state and federal levels since 1977. It is concerned only with actions that have reduced the tax base, not measures that have raised existing taxes or created new ones," said IEFC co-chairmen Senator Dawn Clark Netsch (D-Chicago) and Rep. Thomas Ewing (R-Pontiac).

Netsch and Ewing said the report details the effects of federal income and inheritance tax changes on state and local revenues as well as the impact of a long list of state tax relief initiatives including personal and corporate income, sales, public utility, inheritance and property tax changes.

"While some of the changes made by the state are defensible in terms of overall tax policy, the trend toward cutting great holes in our tax base is disturbing. It is clearly one of the reasons state and local governments have experienced the slower revenue growth that has put pressure on their budgets in recent years. The General Assembly must take note that when we make reductions in our revenue base, we curb our ability to fund basic state services," Netsch said.

State and federal income tax relief initiatives affecting both individuals and corporations have reduced income tax receipts by over $200 million, the report says.

Netsch and Ewing said the report assesses the impact of state sales tax exemption and reduction measures at over $725 million. Sales tax exemptions currently apply to food and drugs, manufacturing and farm machinery and equipment, graphic arts equipment, low-sulfur emission coal-fuel devices, rolling stock used in interstate commerce, railroad rails and petroleum products. In addition, the state sales tax on gasohol has been reduced.

Appraising changes in other state taxes, the report places the cost of abolishing the state inheritance tax at $100 million annually, finds changes made last year in the state utility tax will reduce revenues by $25 million this year and eliminate much future growth in the tax and indicates that recent changes in the horse racing privilege tax will cut state revenues by nearly $4 million per year.

In addition to affecting state tax revenues, the report notes that state tax relief initiatives in the form of expanded exemptions and preferential assessment programs have reduced substantially the property tax base relied upon by local governments.

Such property tax changes include the $3,500 General Homeowners Property Tax Exemption, the $2,000 Senior Citizens Homeowners Exemption; the Disabled Veteran Homeowner Exemption, special exemptions for the property of churches, retirement homes and other not for profit organizations and the farmland assessment formula based on productivity.

While the impact from all the property tax changes is still being calculated, the report says that the general and seniors homeowners exemptions alone have reduced equalized assessed valuations by $8 billion.

The impact of the abolition of the corporate personal property tax and the inconsistent performance of the replacement income taxes have also had a negative impact on local government finances. Replacement taxes have averaged $480 million annually since elimination of the corporate personal property tax in 1980. The report notes this is only $1 million above the $479 million collected in the last year of the personal property tax.

The report also identifies a number of other tax break measures now in force that are not included in the report's cost summary because no accurate dollar amount can be placed on those measures. •

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Page 12 / Illinois Municipal Review / June 1986