The fixation on elections helps explain the fascination with tax cuts
by Charles N. Wheeler III

Congratulations! You've survived Y2K, or you wouldn't be reading this — Illinois Issues is truly an outstanding publication, but somehow one doubts it's on the afterlife bookshelves. So, now that all the eschatological apprehension has proven unfounded, one can turn to less momentous, but still intriguing, questions.

For political aficionados, of course, Year 2000 is an election year, with the presidential election holding center stage for almost, but not quite, everyone. In the case of the average Illinois lawmaker, the only captivating contest is the one in which he or she is running for re-election.

That fixation helps explain the current fascination with voting for a tax cut — any old tax cut — to offset last spring's increases in alcohol taxes and in vehicle license and title fees to help bankroll Illinois First, Ryan's huge public works program. The hope is that a vote to cut taxes today will erase John Q. Citizen's recollection of what happened yesterday.

Thus, legislative leaders are mulling over a staggering array of tax cut schemes, all designed to make the rank-and-file look good in an election year. Some, like the perennial Republican effort to give suburbanites a bigger income tax credit for the local property taxes they pay, have been around for years. Others, like declaring a sales tax holiday of days, weeks or a month, are fairly new.

If lawmakers are interested in sound policy, rather than sound bites, they should target tax relief toward those who've been left behind by the economic boom.

The downside of all such plans, of course, is the cost of the lost revenue entailed in providing more than what may appear to many Illinoisans as mere token tax relief. Consider, for example, the $350 boost in the personal income tax exemption phasing in for the 1999 tax year. At a 3 percent rate, a taxpayer will save all of $10.50 because of the higher exemption — but the treasury will take a $96 million hit, according to budget estimates.

To cut personal income tax rates to 2.5 percent from 3 percent, a proposal floated by Senate President James "Pate" Philip, a Wood Dale Republican, would cost a whopping $1.4 billion, according to revenue department estimates. Yet it would translate into only $250 savings for someone with $50, 000 in net taxable income.

But wait, you might say, $250 may mean only one more upscale dining experience for the guy who's seeing his stock portfolio soar, but it would be a blessed windfall to the single mom working a minimum-wage job or the senior citizen barely getting by on Social Security.

Exactly. And that's why lawmakers, if they're interested in sound policy, rather than sound bites, should target tax relief toward those who've been left behind by the economic boom, those for whom even a few bucks can make a difference.

Another strong argument for targeted tax relief emerges from the most recent "Kids Count" report from the advocacy group Voices for Illinois Children. Almost one out of every five youngsters in Illinois is growing up in poverty, the report notes, a condition accompanied by a host of well-documented negative impacts. A contributing factor to child poverty is the state's income tax policy, which the report contends places "a substantial burden on low-income families, the same families we are encouraging to reach economic self-sufficiency."

Simple math supports the point. For a low-income working family of four, the $1, 650 personal exemption for tax year 1999 means a tax threshold of $6, 600, the fourth lowest in the nation. In contrast, 23 of the 42 states that impose an income tax provide exemptions high enough that no liability falls on families with earnings below the poverty line. Even though the Illinois exemption will go to $2, 000 for 2000, a four-person family still will have to start paying state income taxes before their income reaches half of the federal poverty level ($16, 700 in 1999).

Should legislators wish to ease the tax burden on the working poor, options are available. Among the most attractive:

• Increasing the personal exemption, or providing additional exemptions for working individuals and families with incomes below the poverty level. More generous exemptions would increase the state's income tax threshold, thus shielding more of a

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• Instituting a state earned income tax credit, similar to the existing federal income tax credit, which provides tax reductions and wage supplements for the working poor. More than 753, 000 wage-earning households in Illinois claimed the federal credit in 1997, generating more than $1.1 billion in refunds, reports the National Center on Poverty Law, which is among those urging a state credit.

Also advocating state credits is the Center on Budget and Policy Priorities, a nonpartisan think tank that studies poverty issues. "States that enact earned income tax credits can reduce child poverty, support welfare-to-work efforts and cut taxes for families struggling to make ends meet," notes a center report.

A state credit also is endorsed in the "Kids Count" report, which terms it "an important step toward helping more low-income families achieve economic security and lifting more children out of poverty."

Enacting a state earned income tax credit would let lawmakers brag about a tax cut. More important, the credit would provide meaningful help for poor families striving for self-sufficiency.

Credits are now offered in 11 states. Most piggyback off the federal version, using the same eligibility criteria, making the state benefit a set percentage of the federal credit and providing refunds to low-income taxpayers whose credit exceeds their tax liability.

Similar measures were introduced under bipartisan sponsorship in the Illinois legislature last spring, but got nowhere. Most called for a 20 percent state credit, which center analysts estimated would cost the state some $209 million in the first year. That's well below the cost of some of the other, give-everybody-a-few-dollars schemes now being floated that would have much less impact on people's lives.

Enacting a state earned income tax credit would let lawmakers brag about a tax cut. More important, the credit would provide meaningful help for poor families striving for self-sufficiency. 

Charles N. Wheeler III is director of the Public Affairs Reporting program at the University of Illinois at Springfield.

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