Local Income Tax

Imagine my surprise when I went hunting for information about the Rockford School District election and found my idea for a local option income tax appear:

(State Reps. Dave) Winters and (Ron) Wait referenced a local option income tax, which would let voters decide through a referendum to impose a local income tax to alleviate property taxes.

Back in the mid-1970’s Jim Edgar, as a state representative, introduced the local income tax idea.It would give half the new money raised to schools and half to property tax relief.

The idea delivered a mixed message, just as today’s Senate Bill 750 does.

It co-mingles the ideas of giving more money to schools with giving some real estate property tax relief.

I cogitated on Edgar’s idea for a while and finally worked out an idea that met the widely expressed desired to switch income taxes for property taxes.

It would consist of a local option income tax. It could be done school district by school district. Later, I conceived of a county-by-county version.

The way I remember it, a petition would be passed establishing an income tax rate. It would have to be approved by local referendum.

Because people were the ones complaining about property taxes, my bill would have limited the real estate tax relief to residential property.

Statewide, almost half of property taxes are paid by businesses. If you even wonder why businessmen can support a statewide income for property tax swap, keep in mind that business pays maybe 12% of the income tax collected (down from well over 20% during the early 1970’s).

So, a tax swap is a big tax cut for business as a whole.

Whatever money was raised through the local income tax in year one would be subtracted from the real estate taxes on residential property in year two.

Of course, there would be double taxation in the first year. But, I couldn’t figure out how to cut real estate taxes without having money in the bank to replace the taxes being abated.

The referendum debate would be vibrant. I know two local school administrators who live in modest homes. Their tax burden would increase. With no new money for schools, which way would they vote?

One could predict that senior citizens would vote for it, but how would working couples vote?

My guess is that they would do a comparison of both tax schemes and vote accordingly.

And, there would be educators who figured out that the income tax brings in different amounts of cash each year. It depends on the economy. Would they want to chance property taxes fluctuating significantly?

Any referendum increases in tax rates or for bonds would still be based on the old laws.

All of the money would stay local. For most of suburbia, the so-call tax swap being pushed by the Rev. and State Senator James Meeks would take money out of suburbia.

I can’t figure out a way to force landlords to push the savings through to renters. The best answer I have is to trust market forces. Certainly, when real estate taxes go up, rents increase.

Would the reverse happen? Can’t tell you, but theory says competition should play a significant role.

The Hononegah High School event was sponsored by "Fairer Funding for Illinois Schools," a group I have not heard of before.

Always more at McHenry County Blog. Sometime Sunday, a story on Patrick Fitzgerald's sense of humor.