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The Rostrum

Should the state increase taxes?

By STEVE CULEN


Yes! The opponents of a state tax increase base their arguments on two myths — one, that state spending is out of control and substantial cuts can be made, and two, that we can't afford higher taxes in Illinois.

In fact, state spending has been under tight control in recent years, and state spending on a per capita basis is lower now than it was 10 years ago. The program initiatives in the proposed fiscal 1988 budget have broad public support. Critics have been asked repeatedly to propose alternatives to avoid a tax increase.

By every measure, Illinois is a low-tax state, ranking 43rd of the 50 states in percentage of family income spent on state taxes. Illinois has the lowest individual and corporate income taxes in the Midwest. Individual income taxes will remain low under Gov. James R. Thompson's tax proposals, and an increase in corporate income taxes similar to the governor's increase for individuals will still leave Illinois businesses paying lower taxes than businesses in neighboring states or in other industrial states.

We need a state tax increase because Illinois needs new revenues to finance essential state and local governmental programs and services.

State revenues in recent years have not kept pace with inflation, nor with new spending mandated by the Illinois General Assembly. The state borrowed $100 million this year to pay current bills. Given the sluggish revenue growth projected for next year, the Bureau of the Budget estimates that we will need an additional $500 million in revenue just to maintain a current service budget. A budget without a tax increase will mean across-the-board cuts in education, mental health, law enforcement and health.

The fiscal crisis in local government is equally severe. The Reagan administration has cut a cumulative $4 billion in federal assistance to Illinois governments, and cities and counties have been tightening their belts for several years. The termination of federal general revenue sharing is only the latest blow to the core budgets of cities and counties, costing an average of 5.9 percent of local revenues. Without new money from the state, cities and counties will be forced to either raise property taxes or cut important services.

The inescapable conclusion is that we need a significant tax increase just to stay even.

But is it enough to stay even? We won't be able to fund the educational reform program. Public university students will face big tuition increases. The state will not be able to fund improvements in its mental health facilities to reverse the deteriorating quality of care and treatment. Then will be no welfare reform program to get people off public assistance or to fund modest welfare grant increase that has already been vetoed twice as unaffordable. The prison expansion program will be cancelled. There will be no funds to cope with the skyrocketing reports of child abuse and family problems that are flooding the Department of Children and Family Services. New initiatives to provide retraining for displaced workers and assistance to companies who want to expand or relocate in Illinois will be abandoned.

There is an urgent need to address Illinois' financial crisis. Responsible solutions should also make our tax system fairer. Therefore, while AFSCME supports the governor's tax recommendations (to increase the personal income tax rate to 3 percent; to increase the personal exemption to $1,250 in 1988 and $1,500 in 1989; to broaden the sales tax base to services; and eventually to lower the sales tax rate from 5 percent to 4.5 percent in 1989), we have also proposed additions and improvements to insure fairness and adequate revenues to both state and local governments in the years ahead.

• Illinois corporations should pay their fair share of any tax increase. The corporate income tax should be increased from 4 percent to 4.8 percent — the same rate of increase as that proposed for the individual income tax. In addition, Illinois needs a corporate minimum tax linked to the federal provision to insure that all profitable corporations pay at least some income tax.

• Extending the sales tax to services is a sound idea, but there is no justification for leaving out services such as law, accounting and architecture, services that are used primarily by corporations, the rich, and upper-middle income taxpayers. Medical services should be exempt as a necessity, just like food. From a public policy point of view there is no rational basis to tax goods and not services. Many states are actively considering taxing services, as Florida has just done. If we don't tax these services, then the state is going to need a much higher income tax increase than has so far been proposed.

• Low-income taxpayers and the poor deserve more tax relief. An Earned Income Tax Credit at 10 percent of the recently expanded federal credit will make sure that state taxes do not increase for low-income citizens and that the poor are taken off the tax rolls.

Finally, local governments need more help from the state. The Local Government Distributive Fund formula should be changed from the current 1/12 of state income taxes to 1/10 — an affordable proposal for the state under this comprehensive plan.

Illinois urgently needs additional revenues. Those who claim to want expanded services but don't have a plan to raise the needed dollars are whistling in the wind. Responsible leaders should act now to shape our tax system to meet the vision that we all have for a better future for Illinois.


Steve Culen is executive director of Council 31 of the American Federation of State, County, and Municipal Employees (AFSCME), which represents some 62,000 Illinois public employees. The complete AFSCME tax plan is available from AFSCME, 534 S. Second Street, Springfield, III. 62701.



38/June 1987/Illinois Issues




By WILLIAM E. DART


NO. On April 29, two articles about salaries appeared in the press. One detailed the concern of Illinois senators with what they termed "exorbitant" pay increases for Gov. James R. Thompson's staff. It was noted that 13 of the governor's aides during the last two years averaged increases ranging from 11 to 64 percent. On that same day, the Wall Street Journal printed an article on compensation for workers in the private sector indicating that in the year ending March 13, 1987, according to the U.S. Department of Labor, wages and salaries for non-union workers in private industry rose 3.5 percent, well ahead of a record low 1.7 percent increase for union workers. The article went on to note that "pay gains for non-union employees have outpaced those for union workers for the past four years.''

The stark difference in the statistics in these two articles is illustrative of the private sector's concern about continued expansion of government spending at all levels. Ironically, even though the above statistics indicate that union workers are coming out at the bottom end of the wage scale, we detect strong union support for the governor's tax program. Clearly this support reflects the special interests of AFSCME and the teachers' unions for obvious reasons. We doubt that rank-and-file union members in industry are excited about seeing their taxes increased.

Illinois manufacturers share the governor's concern about education, mental health, the Illinois infrastructure. However, this is not the first time that these issues have been held out as a reason for increasing state spending. One has to ask the question: Do further tax increases bring deeper economic stress, creating more unemployment, thus further aggravating the problems of education, welfare, mental health, etc.? Is "education reform" really just a code phrase for increasing taxes so the funds will be available for school districts to increase teachers' salaries and avoid strikes? Is the concern over the many problems of this state, which the proposal tax increase is supposed to alleviate, really just a concern that the vast bureaucracies involved in dealing with these difficult issues be staffed with AFSCME affliated employees who will be assured of further sizeable increases from the new available taxes?

So-called tax reform at the federal level has already led to a tax increase for Illinois industry both at the state and federal level. A reasonable analysis would indicate that the effect on Illinois business and industry could be as high as $100 million to $150 million in new state taxes plus a whopping $1 billion to $2 billion in additional federal income taxes. Logically, to maintain a competitive position in the pursuit of expanding the industrial base, Illinois should be considering a reduction in taxes and regulatory costs for manufacturers.

Illinois manufacturers are acutely aware of the fact that continuing state-mandated cost increases for manufacturing over a period of years have resulted in a serious loss of high-paying manufacturing jobs for Illinois. As a direct result, the population growth of Illinois is stalled, per capita income has dropped precipitously, job growth has halted. This type of economic stress creates a continuing need for more tax increases to fund problems that arise from a lowering of economic wealth and an increasing number of people and institutions who depend on the private sector to support their well-being. Obviously, this is not encouraging to manufacturers considering the expansion or even retention of existing manufacturing facilities in the state.

We believe that the governor and the General Assembly must come to grips with the grave problems of Illinois' rapidly deteriorating industrial base. A tax increase could be of minor interest to Illinois manufacturers if their primary concerns were addressed by:

• Reducing the high cost of workers comp.

• Reducing unemployment taxes.

• Repealing the Scaffold Act.

• Eliminating the tax on energy used in manufacturing production.

• A five-year moratorium on additional environmental regulations.

Since all of the exorbitant costs related to the above are paid without regard to whether a manufacturer has a profit, positive action on these measures alone would bring a sharp improvement in the Illinois manufacturing climate and be such a significant force for creating jobs in Illinois that the proposed taxes on income could be much more easily absorbed by the economy of this state. The General Assembly and the governor cannot continue to keep the outlandish state-mandated employment cost burden that currently confronts Illinois manufacturers if they expect meaningful job growth to ever again occur in Illinois.

It's time for the governor and the Illinois General Assembly to alleviate these major employer problems and thus convince those in the industrial sector that our government leaders understand the need for cutting employer costs in order to increase Illinois employment. Manufacturers are aware that economic development in Illinois is not going to come about as a result of manipulating the marketplace through subsidies or property tax abatements. Meaningful economic development will come when the governor and the majority members of the Illinois General Assembly are ready to acknowledge that the tax and overhead burden on Illinois industry, to the extent that it's controlled by Illinois government, must be reduced.

William E. Dart is vice president for government affairs of the Illinois Manufacturers' Association. The IMA's 5,100 members employ 771,000 people, 75 percent of Illinois citizens employed in manufacturing.

June 1987/lllinois Issues/39



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