Bill to Hike Income Tax, Lower Property Tax Stirs Debate

Published January 1, 2005

A strong push is underway in Illinois to radically change how taxes are collected and distributed in the state, mainly in response to complaints from educators upset by how public schools are funded.

Ralph Martire, executive director of the Center for Tax and Budget Accountability, an Illinois-based fiscal policy think tank, is a leading spokesperson for the effort.

“Tax reform could help solve [the] Springfield budget mess,” Martire wrote in the June 5, 2004 edition of the Chicago Sun-Times.

Reform or Increase?

House Bill 750 would increase the state income tax from 3 to 5 percent and raise other taxes in exchange for a cut in property taxes. Critics say the bill is not revenue-neutral, but rather a tax increase that would send more money to public schools and state budget coffers.

“It’s really a tax policy bill,” said Ben Schwarm, associate director of the Illinois Association of School Boards, in the Northwest Herald on November 23. He said the bill “would generate about $7.5 billion not earmarked for education.”

According to Family Taxpayers Network President Jack Roeser, HB 750 “is based on the false premise that the problems with the public school system can be solved with more money.”

In a letter to the editor that appeared in the November 22 edition of the suburban Chicago Daily Herald newspaper, Naperville Unit District 203 Superintendent Alan Leis succinctly laid out the bill’s main points and the politics behind it:

  • “raise [the personal] income tax to 5 percent [from a current flat 3 percent] on those with incomes above roughly $50,000;
  • “eliminate the [personal] income tax exemption on retirement income above $75,000;
  • “broaden the [state] sales tax to include services as well as [other] products;
  • “increase [the state] corporate income tax to 8 percent [from 4.8 percent];
  • “provide a 20 percent to 25 percent [local] property tax rebate.”

Tax Cap Frustrates

“For those of us charged with running school systems, the tax cap on what schools receive and the lack of Illinois state education funding (compared to other states) is a constant source of frustration,” Leis wrote.

He continued, “The philosophy behind HB 750 is that the only way to fix Illinois’ structural deficit, provide additional educational funding to economically impoverished areas, and reduce what many feel is an over-reliance on the property tax for school funding is to do all of those things at once, in one bold move.”

As the bill is being tweaked and hearings are being held, groups are lining up on both sides.

“Many education groups are supportive, although the District 203 school board, while encouraging additional debate, opposes the bill in its present form,” noted Leis in his letter. “Business and taxpayer groups have voiced strong concerns since the bill is, after all, a tax increase. HB 750 helps education most, but it also devotes $2 billion to ameliorate the structural deficit. Both opponents and supporters note that, in reality, the increase in income tax revenue will come from the collar counties [that surround Chicago] with the bulk of that income then distributed statewide.”

Intense Debate Expected

HB 750 appears to have laid the groundwork for debate over significant changes in Illinois’ tax structure in 2005.

In a recent press statement, State Senator Chris Lauzen (R-Aurora) said, “This legislation promises no improvement in student performance, yet will increase your personal income tax by 67 percent (from 3 percent of your annual income to 5 percent), increase the size of state government by $5 billion, increase your corporate tax by another $600 million, apply a new sales tax on many everyday services by $1 billion, etc. Proponents will put $2 billion into education, ‘promise’ $2 billion in property tax relief (neither permanent nor substantial), and hand over more than $2 billion to state politicians in general revenue funds to spend however we like.”

State Sen. Dan Rutherford (R-Pontiac) told the Associated Press, “the proposal has fired up cash-starved school officials, but won’t make it through the legislature without major changes.”

He noted the proposal would raise at least $2 billion more than schools need, essentially “using the backs of school kids” to pump money into other state programs such as Medicaid. He also said the proposal does not include a cap on property tax rates, opening the possibility that property taxes would rise soon after the bill’s passage.

“I don’t think it has a prayer of passing as it is,” Rutherford concluded.

State Sen. Pamela Althoff (R-McHenry) told the Northwest Herald, “legislators have taken some of the concepts in House Bill 750 and hope to develop a separate bill that deals only with education, removing many other tax-policy issues.”

Illinois Governor Rod Blagojevich (D), who was elected in 2002, campaigned on promises not to raise the state income tax or sales tax. He has not taken a public stance on HB 750.

John W. Skorburg ([email protected]) is a visiting lecturer at the University of Illinois, Chicago, and associate editor of Budget & Tax News.