Illinois, now that the Democrats have complete control of the state, is poised to pass HB 750, the so-called tax swap to reform education funding. The idea is to reduce dependence on property taxes for education and increase dependence on income tax, business tax, and other tax increases. Now, in theory if it was a 1:1 swap, that'd be one thing (though I doubt the integrity of the state government in actually passing that money down to school districts).
This is a tax increase under the guise of a tax swap. Income tax will increase by 2%, business income tax will increase by 4%, and there will be a new tax on services at 6%. It is theoretically going to include a tax abatement to reduce the education portion of property tax bills. The estimated increase in taxes will be $7.2 billion; the estimated property tax reduction will be $2.5 billion.
Imagine a 6% income reduction (I assume that the services sales tax will balance out the property tax abatement, at least initially). That is what we'll have with HB 750. All taxes on business will be passed on to consumers because prices are always set to compensate for costs. Combine this with the proposed minimum wage hike, it is an economic disaster. Increased wages will only increase the cost of living. So do increased taxes.
Interestingly, an analysis of DeKalb County shows a very nominal increase in revenue to most school districts with some districts actually losing money. Hypothetical question: do you think the Naperville schools which are successful will get more or less money in the new system? That's right, state funding won't bring the bottom up; it'll bring the top down as it always does.
Illinois has an average business climate with an economy that's below average. The current economic freedom indicator ranks us at 46th in the country. Illinois is currently ranked 23rd in the State Business Tax Climate. Illinois is 24th in unemployment. After this tax increase, the economy in Illinois, which is not great, will suffer greatly. When it is easy to move a business or a family to a friendlier state, why would people stay in a state with a lousy economy?
The property tax abatement, by all indications, will be temporary. There is no obligation for that money to really be passed on to property taxpayers. In the light of an almost $50 billion debt, it is less than likely it will be. More likely, the money will find itself wasted or spent on more corruption. This is Illinois after all. Blagojevich's administration has been defined by money going to friends instead of what it was meant for.
Lastly, there is the idea that money will magically make a better education system. Money can be an important factor, but it certainly isn't the only factor. Anyone who has worked in the private sector (and more importantly the public sector) has seen the tendency to promote incompetence. Everyone knows over-paid and unqualified idiots in positions they don't deserve to have. There are many good teachers out there; there are also many bad ones. They both get paid the same.
HB 750 sounds good if all you hear are the media sound bites. In practice, it is a massive tax increase, some of which will go to the schools, some of which won't. It will drive businesses and entrepreneurs out of the state, it will drive the cost of living up, and it will reduce effective income. It's a sham bill and it's disgraceful that it will likely pass without any real debate (in no small part because the Illinois Republican party is no longer a statewide part).Powered by Sidelines