‘Tax Swap’ Backers Lose in Illinois, Promise to Return

Published July 1, 2005

The perennial effort to shift the burden of funding education to the state income tax and away from local property taxes again failed in the Illinois General Assembly in May, but advocates left the state capitol vowing to fight again another day.

A “tax swap” bill was not called for a vote, despite rallies by hundreds of public school employees at the state capitol, because of a threatened veto by Gov. Rod Blagojevich (D) and lawmakers’ fears of voter retaliation in next year’s election.

Sought $2.2 Billion More

Under the proposal, Illinois’ personal income tax would have been raised to 5 percent, from 3 percent, while the corporate tax rate would have increased to 8 percent, from 4.8 percent. Of the additional $5.8 billion generated by the two-thirds increase in the income tax, about $2.2 billion would have gone to education, and much of the rest would have been used to offset an expected $3 billion reduction in property tax revenues.

Variations of the idea have been knocking around Illinois’ political landscape since at least the 1980s, and tax swap proponents believed 2005 might be the year for a win. With skyrocketing home prices, they calculated homeowners would be clamoring for property tax relief. Belt-tightening by local school districts and a state budget in shambles gave them further hope.

Newspaper Deals Heavy Blow

But as hundreds of proponents were rallying for the legislation at the state capitol, the Chicago Tribune on May 18 published an analysis of the measure that may have dealt it a fatal blow. The newspaper reported the proposal would have resulted in an average 20 percent increase in the total state tax burden for homeowners throughout the state. Some upper-income singles who rent could have seen net tax increases of more than 50 percent, far more than the $30 tax credit they would have received under the legislation.

Opponents took advantage of the opening and scorched the measure for being anything but a tax swap. They also pointed out that the income tax increase was to be permanent, but long-term property tax relief was not guaranteed.

The following day, State Sen. James Meeks, a Chicago south suburban independent and the bill’s chief sponsor, admitted he lacked the votes to pass it, effectively killing it in the Democrat-controlled legislature.

The bill barely made it off the starting blocks in the Senate, where the backing of Senate President Emil Jones (D-Chicago) wasn’t enough to keep it alive. In the House, Speaker Michael Madigan (D-Chicago) did not take a position and, unlike the Senate, a companion bill didn’t make it out of committee.

Senate President Still Pushing

For Jones, the issue is still alive. He has created a committee to take up tax overhaul. But State Sen. Peter Roskam (R-Wheaton), a declared candidate for a northwest suburban congressional seat, proclaimed the bill would not rise “from the dead.”

State Sen. Steve Rauschenberger (R-Elgin) was a bit more cautious: “When you give property tax relief in a swap,” he told the Chicago Tribune on May 21, “most of it does not go to the families who see the increased income tax. The [tax swap] bills have failed consistently for almost 15 years. We need to take a fresh look at property tax reform. Income tax as a swap just doesn’t work.”

Dennis Byrne ([email protected]) is a Chicago writer and consultant.