A. Problems of a purely administrative nature.       Back to IDOR A-1

A-1. As a starting point I concur with the department of revenue that the tax applies only to individual taxpayers. However, I don't believe the problems of expanding it to apply to corporations in the future are insurmountable. As outlined already the state has a formula for determining income for multi-state corporations for the state income tax. Rather than corporations having to decide which portion of that income belongs to whatever geographic area it has facilities within the state, let the state do it. Apportion the amounts of income based on the income figure the state used in determining the state income tax. Continuing the example let's say a corporation has six plants in the state. Perhaps the state could apportion the income for purposes of local taxes based on employment only, since people create the need for additional schools and services. Or in the case of a large retail store a combination of employment and gross receipts used in a formula for apportionment within the state. One suggestion for utilities that may operate in several counties would be to apportion the income for tax purposes by the amount of power or services sold in a geographic area. With customer billing on computers this would be a relatively easy task. As a justification for this one might ask why should only one area receive the tax benefits from having a large industry or utility plant when in fact many people from outside that area have contributed to the purchase and construction of it!

Once the local income tax is developed and refined to a geographic area such as a county, there would be 102 possibilities of tax rates or percents of income for individuals and corporations if included. Within each county if there are more than one taxing body or several school districts with different rates or percents of income it could be handled by the county treasurer’s office. This would be similar to the way it is done now with the property tax. Under the property tax system in a given township the amount of tax revenue for the various taxing bodies can be broken down into a percent of a total property tax bill. The partial percent apportioned to the taxing bodies in that township are the same regardless of the total amount of the property tax bill. Therefore, the apportionment of a local income tax could be done by applying rates that are adjusted as partial percents of income rather than assessed property values.

Typical property tax bill compared to one based on income. In this hypothetical example the person's home is assessed at 14,235 and he or she has a net income of 130,000 a year. The example is not intending to demonstrate that a person's property tax bill can be exactly replaced by one based on income as in this example. But, to show that more than one taxing body with different rates can be dealt with similar to how it is done with the property tax.

Property tax bill

Income tax bill

Taxing Body

Rate

Amount

Income Rate

Amount

Forest Preserve

.0735

multiply 14,235

$10.46

.03486

Multiply 30,000/100

$10.46

Twp. Gen. Tax

.1256

"

$17.88

.05960

"

$17.88

Twp. Hd. & Br.

.1550

"

$22.06

.07353

"

$22.06

Twp. Hard Rd.

.1250

"

$17.79

.05930

"

$17.79

Gen. Assist.

.0353

"

$5.03

.01677

"

$5.03

Fire Dist.

.2271

"

$32.33

.10777

"

$32.33

School Diet. A

2.1286

"

$303.01

1.01003

"

$303.01

School Dist. B

1.7201

"

$244.86

.81620

"

$244.86

College Dist C

.0225

"

$28.83

.09610

"

$28.83

Twp. Park

.0270

"

$3.84

.01280

"

$3.84

Library

.0513

"

$7.30

.02433

"

$7.30

County Funds

.5180

"

$73.74

.241580

"

$73.74

Tax Rate/Total

5.389

"

$767.13

2.557%

"

$767.13

Collections could be done once a year locally or withholding by the state. A combination of the two might work best to improve the cash flow problems for the schools and other taxing bodies. There could be a withholding tax state wide the same percent to make it easy. For example two percent and call it a “Carrier percent”.  At the end of the year or after the state income tax forms are filed the county could send out yearly bills based on the percent of income rate for that county. Some which may be greater or lesser than the carrier percent collected by the state and returned to local government during the year This would result in individual additional payments or refunds from the county. The individual would file a copy of their W2 statement with the local income tax bill as evidence of the amount of the local tax paid already through payroll deduction.

A. Problems of a purely administrative nature continued.       Back to IDOR A-2

 A-2.  I concur with the department of revenue s position. The adjusted gross income figure rather than the net income figure would insure more equal treatment of taxpayers. For example, the funding of schools using the net income figure allows people with children to pay less when they are using the schools more.

A. Problems of a purely administrative nature.         Back to IDOR A-3

A-3.  I don't agree for reasons stated A-1 Comments.  To determine the different tax rates a study could be made for a given total tax rate in a township or county.  To find the percent of income that would be needed to replace the property tax revenue presently collected find the average percent that individuals are paying in property taxes. To find the average percent for all taxing bodies find the total aggregate property taxes paid in a given township or county by individuals and divide by the individual income base for the same geographic area. To determine the individual tax rates for each taxing body determine the amount of property taxes from the aggregate that was apportioned to the tax body than divide by the individual income base for the area.

A. Problems of a purely administrative nature.          Back to IDOR A-4

A-4. I concur with the department of revenue's position. I believe the problem of mobility would have a minuscule effect in a given year and would balance out to some degree.

A. Problems of a purely administrative nature.            Back to IDOR A-5

5. A combination of withholding and final year payments might be feasible. To make it feasible for local collections only, the state could share information on the state income tax form. This could be done by sending a copy or computer print outs of income information to the respective county treasurer's office.  Legislation would be required for this idea.

B. Problems of a purely policy nature.            Back to IDOR B-1

 B-1. Yes, local governments should be autonomous for reasons the department of revenue has stated. It would not be any more cumbersome than the property tax system for local governments to impose based on arguments presented in Section “A” items A-1 and A-3. 

 B. Problems of a purely policy nature.           Back to IDOR B-2

B-2. Yes! People are paying the taxes to support schools and local government they ought to have a say in how they want to fund them.  Increases or decreases should be voter approved also this would force schools and local governments to plan their budgets a year in advance, based on the preceding year s income figures. They would know just how much money is available. Also it has a built in inflation escalator. Once the flat percent is established there may not be a need to change it.  To increase the rate should require a voter referendum.  As people’s personal incomes increase the same percent of a greater total will increase the tax revenue. On the other hand, if there is a recession and people have to reduce their standard of living so should the schools and other taxing bodies. It forces the schools and taxing bodies to live within the same wage adjustments of the people supporting them.

B. Problems of a purely policy nature.        Back to IDOR B-3

B-3. Replacement!  Anything less than a 100% replacement of a particular fund will not adequately address the inherent inequities and the disproportionate distribution of the tax burden in the property tax. Therefore, only 100% replacement of selected funds should be considered.

 B. Problems of a purely policy nature.        Back to IDOR B-4

 B-4. The Illinois General Assembly should draft legislation that shall give taxing districts or counties the option by voter referendum.  As long as the local districts were autonomous it would be feasible for each county or taxing district to be different.

B. Problems of a purely policy nature.           Back to IDOR B-5

 B-5. Let’s start with a definition of “tax burden”.  For example, if two people pay $800.00 in taxes.  The first earns $40,000.00 and the second earns $20,000.00. Obviously the burden of paying $800.00 is more severe on the 120,000.00 wage earner. For comparisons the tax burden to each of us can be looked at as a percent of income. In the example the first 1s paying 2% and the second person is paying 4%. The tax burden is not distributed equitably between the two.  Under the real estate property tax system it can be shown that people are being taxed according to their individual life style.  We are paying varying rates or percents of our income to fund schools and local government.  Homeowners within the same taxing district can be paying anywhere from 2% to 6% of their gross income.  Some retired people are paying as high as 11%.  There are some who pay less than 2%.  Yet the schools and local government services are for everyone.

Both the property tax and an income tax based on the assumption that the more you earn the more you can afford to pay. That whatever tax system we use we cannot all expect to pay the same dollar amount. And, it is a logical thought that if you earn more you can afford to pay more. But, this is where the similarity ends. An income tax such as the state income tax taxes us on the money we earn. It takes into consideration our ability to pay taxes. It does distribute the tax burden equitably and relative to each of us. We all pay the same percent.  By contrast the property tax does not tax us on the money we earn but on how we have spent the money we have earned.  Whether we bought a big house, a little house, or added to our home.  We might further ponder some additional questions:

1.       What does the size of our house have to do with the level of service we get from schools or local government and are individual responsibility to fund them?

2.       Which is a more accurate way to determine our taxes and our ability to pay them?

3.       Which system taxes us on what we earn and gives us the freedom to spend the rest without additional tax penalties for how we spent it?

Reference note:  Public opinion has already been sampled on the concept of replacing real estate property taxes with a local income tax a several locations in the state with advisory referendums held in the 1980’s.

B. Problems of a purely policy nature.            Back to IDOR B-6 

B-6.  I don’t agree for reasons stated in section comments A-1 and A-3 also section B-1 of this commentary.

C. Problems of a dual policy/administrative nature.        Back to IDOR C-1

C-1.  I don’t agree.  See section A-3 and section B-2 for comments

C. Problems of a dual policy/administrative nature.        Back to IDOR C-2

C-2.  There should be spending limitations so that during good economic times taxing districts budgets cannot be a given percent over the previous year so the money can be saved and generate interest for poor economic times.  If a surplus got too large a decrease referendum could be held, as outlined in section B-2 comment.  Besides cutting back and increase referendum could also be used in dealing with shortages.

 C. Problems of a dual policy/administrative nature.        Back to IDOR C-3

C-3.  Total replacement of selected funds should only be considered for reasons already stated in section B-3.  Adjustment of the school aid formula to an income base would be required.  But, as pointed out earlier since property taxes are paid with income it can be looked at in terms of an income tax.  Average percents of income that individuals are paying can be calculated for every taxing district.  Then a state average could be found and the money apportioned to equalize the varying taxing district rates or percents of income.

C. Problems of a dual policy/administrative nature.            Back to IDOR C-4

C-4. a.  The degree of the problem stated would vary from county to county and would be a onetime problem.  Afterward it would become a maintenance problem as with updating property tax records.

b.       I don’t see this as a concern because if corporations were included they would be taxed at a different rate than individuals.  This is no different than how the state income tax applies to this situation.

c.       This same question applies to the state income tax.  The inequities should not be any greater than how the state income tax treats this situation.

C. Problems of a dual policy/administrative nature.            Back to IDOR C-5

C-5.  I follow the department of revenue’s position of the time frame and agree it will take a form similar to what is outlined.  I think the phase-in of a local income tax would work rather well since property taxes are always a year in arrears.  In the transition year the property taxes would be collected as normal for the previous tax year.  After the state tax forms are filed for the current or transition year the local income tax could be collected.