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Monday, April 09, 2007

Illinois' Tax Mess

John McCarron has a decent op/ed piece in the Chicago Tribune this morning on the fact that we need an adult to negotiate the tax mess that is brewing in Springfield; and don't seem to have one in place.

Mr. McCarron, like may editorial writers lately seems to have forgotten that Illinois' Constitution is part of the problem with our states tax issues. Many of them lament the fact that we have a flat tax rate of 3% on income in the state, and want to see it changed to a graduated tax. To do so would require a revision of Article IX of the Illinois' Constitution, which states:
Section 3a: Tax on or measured by income shall be at anon-graduated rate. At any one time there may be no more than one such tax imposed by the State for State purposes on individuals and one such tax so imposed on corporations. In any
such tax imposed upon corporations the rate shall not exceed the rate imposed on
individuals by more than a ratio of 8 to 5.
The legislature has in it's power the ability to make more things deductible for state tax purposes, and give credits for things to reduce the burden on the low income, but no real way to increase on high income earners as McCarron and others would like. That will require a Constitutional Convention, which could be called for on the 2008 general election ballot if the Legislature can muster the will to vote for it.

Others, such as the Governor, have been calling on increases in business taxes, strictly using the corporate income tax as the measuring stick of what business pays in Illinois. The Illinois Chamber of Commerce and other business groups have disputed the numbers on what they pay in taxes, using more realist numbers that include unemployment and workers comp payments to the state, other things.

McCarron does a decent job of pointing out areas where business does get off somewhat lightly, but doesn't point out why on some things.

Property taxes on business are, in some cases, lower than the rate on residential property. However, in many areas that's to attract business, which cause a lower burden on municipalities than residential construction does.

If you build a thousand housing units you need more fire protection, more police, and more schools, along with social services for residents, etc. If you build an equivelant size retail or other commercial establishement you will likely need less extra police and fire units, and no extra classrooms and teachers or social workers.

But the rates that each is assessed at isn't a job of the state, but instead each county decides on taxing rates. So including property taxes as something the state can "fix" isn't really correct on McCarrons part.

He also notes that businesses, especially large ones, can negotiate rates on electricity and other utilities that residential customers can't. He doesn't point out that many of those negoiations are two way. A business may get a lower rate on electricty, if they promise to limit peak hour consumption during the summer months. They are also required to buy set amounts per day for the period of the negoiated rate. Consider a plant that enters a 1 year electric contract, but six months in they lay off an entire shift. Even though their consumption will go down, they will still have to pay for the unused power they contracted for.

Residential customers can apply for "Real Time Rate" programs, which charge for electricity based on when during the day you use it, similar to what business do. However, McCarron doesn't mention that in his piece, though it has the potential to reduce residential bills by more than they went up with the recent rate increase.

On the whole, McCarron is right that we need someone with some backbone in Springfield to get the ball rolling on real, meaningful tax reform for the state. Part of that reform can be done by the legislature, but some of it needs to be agreed on by everyone, though changes to the Constitution, specifically Article IX.

Until someone sets down Gov. Blagojevich, Emil Jones, and Mike Madigan, and gets them to work for what's best for the state, not just their poll numbers and own pet projects, nothing is going to happen; and we'll continue our slide into a fiscal abyss. Maybe, as McCarron points out, Lt. Gov. Pat Quinn is the guy, he seems to have no problem bucking the Governor lately.

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