For half a century, Illinois politicians have toyed with the idea of reducing property taxes by increasing the income tax to pay for schools.
The so-called “tax swap” has been embraced at one time or another by everyone from pro-business Republicans to liberal Democrats — some of them more serious about it than others.
In arguing his case last week for Illinois legislators to make permanent the state’s “temporary” tax hike, Gov. Pat Quinn invoked the memory of the most serious effort ever undertaken to actually enact a tax swap.
“Jim Edgar and I don’t always agree, but he was right in 1997 when he advocated a plan to use the income tax to invest more in education while cutting property taxes for the middle class,” Quinn said. “This fundamental principle was right then, and it’s right now.”
Quinn never used the words “tax swap” to explain his plan. That’s just as well because his proposal to couple his income tax hike with what he called a “guaranteed $500 property tax refund” has little in common with Edgar’s plan.
Most importantly, Edgar, a two-term Republican governor, proposed concrete steps tying any increased state funding to forced property tax reductions for local school districts.
Quinn’s plan doesn’t do anything to directly reduce property taxes, although in theory his pledge to use the income tax revenue to direct an additional $5.2 billion to schools over the next five years should reduce the pressure on local school districts to raise taxes during that period.
While we’re waiting for Republican Bruce Rauner to explain how he (and those school districts) would do without the $4 billion the state would forgo if the income tax were rolled back (and please don’t make the mistake of holding your breath while you’re waiting), I thought we ought to put the governor’s tax plan back under the microscope.
Being absolutely on Quinn’s side against Rauner does not mean I stop questioning the governor’s policies.
To repeat, I think we ought to keep the income tax increase.
Better for Quinn, so does Edgar, who told me: “I don’t think they have a whole lot of choice.” The former governor thinks the money is needed to pay for education and human services and to continue paying down the state’s backlog of unpaid bills.
As it happens, though, Edgar and I both have a take-it-or-leave-it attitude toward Quinn’s property tax piece.
I caught up with Edgar on Friday as he was driving through New Mexico on his way back to Illinois from Arizona.
Edgar said he thinks the refund money would be better spent on paying down those bills, although he acknowledges the refund might make it easier for Quinn to sell his plan to skeptical voters and legislators.
“The one thing about his approach is there is a simplicity to it. It’s probably easier to explain,” said Edgar, whose “tax swap” failed in part because it was so complicated, which caused people to doubt their property taxes would really be cut.
By sending out the $500 checks this summer, Quinn expects to allay such doubts.
The theory behind a tax swap is that the income tax is a fairer method of taxation than the property tax because it more accurately measures someone’s ability to pay.
Also, by placing the responsibility for funding education on a tax collected by the state instead of local governments, there should be less of a disparity between “rich” and “poor” school districts, or at least the poor districts would get more money than they do now.
Quinn won’t get any argument from me about that. Still, we ought to be clear about what his plan does and doesn’t do.
His $500 “property tax refund” doesn’t return any property taxes anyone paid. It’s really more of an income tax refund that relates to property taxes only in that it is targeted specifically to homeowners.
That’s the Legislature’s time-honored method of providing property tax relief. The state’s current vehicle is a property tax credit for homeowners on their individual income tax return. Quinn would do away with that.
As I explained the other day, the net benefit to any homeowner is therefore less than the ballyhooed $500, although in most cases it will be double what they now receive from the credit.
In addition, any homeowner who pays more than $10,000 a year in property taxes (about 8 percent of Illinois homeowners according to the governor) will actually get a double whammy under Quinn’s plan.
In addition to the income tax increase, they’ll receive less from the refund than they currently get from the credit.
Republicans are going to say that’s yet another Quinn tax increase — and they’ll be right.