Let’s Reduce The Pressure On Property Taxes To Build Revenue

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By John Bouman — President of the Sargent Shriver National Center on Poverty Law

In Illinois, there has been a constant conversation around property taxes – it is important to know that there is a direct relationship between our income taxes and what we pay in property taxes. Our income taxes are determined by the state and affect everyone, but our property taxes are determined by local governments and are applied specifically for those localities.

If state revenues are inadequate to fund important government functions, like schools and social services, then localities are left to figure out how to address these inadequacies. Leaving them un-addressed diminishes the quality of life and opportunity in communities. But addressing them means money must be raised locally, to make up for the inadequacies of the state’s revenue system, and that puts upward pressure on the property tax.

However, the one tax that is comparatively higher in Illinois than other states is the property tax; in fact, it is the second highest after New Jersey. Yet, Illinois has a flat income tax that is among the lowest, certainly below almost all of our neighboring states. As a result, Illinois is 50th in state contributions to school funding, contributing just 24.9% of overall education spending.   

In Minnesota, the state provides 66.7% of funding for public schools. Michigan provides 60.2%, Indiana provides 56.1%, Iowa provides 53.5%, Wisconsin provides 45.9%, Ohio provides 45.6%, and Missouri provides 32.5%.

Localities in Illinois that wish to have better schools have had to rely on property taxes for additional funding.

In fact, property taxes provide a greater share of funding for public schools in Illinois than in any other state, at a whopping 58% – the national average is only 36.4%. In the Midwest, every state with a graduated income tax (like the Fair Tax would create in Illinois) relies substantially less on property taxes to fund schools than Illinois: Minnesota (13.6% of K-12 funding), Iowa (32.5%), Ohio (39.2%), Missouri (46%), and Wisconsin (42.9%).

Due to its perennial budget crises, Illinois has also been starving localities of funding for community mental health and a myriad of other social services. This has led to jails becoming overcrowded and serving as the leading mental health facility in the state, which has resulted in our communities experiencing violence and other signs of stress as a result. Jails, police, and other measures require local funding from property taxes. The need for these services increases when the state is not supporting them or investing in the programs that reduce the need.

According to the Census Bureau, Illinois ranks 8th in the nation in the percentage of all state and local revenues that are from property taxes (22.9%). Every other state in the Midwest relies to a lesser extent on property taxes: Wisconsin (19.3% of all state and local revenues), Michigan (16.3%), Iowa (16%), Minnesota (14.9%), and Missouri (13.6%).  

The argument opponents are making that the Fair Tax “raises taxes” and should therefore be opposed seeks to take advantage of widespread frustration with high property taxes. But this only works if the truth is kept obscure. Without the Fair Tax, the state’s revenue system will continue to fall short and create pressure on the property tax, which could easily be relieved by creating a Fair Tax Now. The system most likely to be implemented in Illinois would not only raise state revenues but it would do so while simultaneously reducing the income tax rate for most taxpayers. This is a double benefit for the middle class: reduced pressure on the property tax and reduced income tax rates, which is why everyone should be supportive of a Fair Tax Now.

The Responsible Budget Coalition’s (RBC) website is hosted by the Shriver Center on Poverty Law (Shriver Center).