ILLINOIS LEGISLATIVE COUNCIL
SPRINGFIELD – 62706 – 217/782-6851
SENATOR DAWN CLARK NETSCH - CHAIRMAN
REPRESENTATIVE JACOB JOHN WOLF - VICE CHAIRMAN
REPRESENTATIVE SAMUEL M..McGREW - SECRETARY
H. WILLIAM HEY - DIRECTOR OF RESEARCH
Honorable George Sangmeister
1052 Stratton Building
Sprlngfield, Illinois 62706
Senator Sangmeister: Return to Senate
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Local Government Through the
State Income Tax
is in response to your inquiry regarding the ramifications of eliminating the
local property tax and replacing it with revenues from the state income tax.
Specifically you asked for two estimates; one which is based on the
elimination of all property taxes imposed by local governmental units and one
which is based on the elimination of property taxes imposed by school districts.
To accomplish this objective the state's non-graduated individual and
corporate income tax rates (Ill. Rev.
Stat. 1979, ch. 120, sec. 2-20lb) of 2.5 percent and 4 percent,
respectively, would have to be increased to levels that will produce the
additional revenues. In addition, any increases in these rates will have to
conform to the constitutional mandate which provides that the income tax rate on
corporations shall not exceed the rate imposed on individuals by more than a
ratio of 8 to 5 (Ill. Const., art. IX, sec. 3a).
total statewide property tax extensions on real and personal property in the
1978 tax year (taxes collectable in calendar year 1979) were about $4.58
billion. Of this total about $2.75 billion (approximately 60 percent)
was attributable to extensions made by all types of school districts
(including community colleges) throughout the state.
In fiscal year 1980 the state's total income tax base of approximately $95.8 billion produced income tax revenues of about $2.6 billion. The $82 billion individual base yielded about $2.05 billion and the $13.8 billion corporate base produced about $550 million.
February 16, 1981
Income Tax Base and Revenues
the property tax extensions of all local governmental units throughout the state
are to be recaptured through the state income tax, the current 2.5 percent
individual rate would have to be increased to 6.9 percent. When multiplied
against the $82 billion individual base, the 6.9 percent rate would produce
$3.61 billion more than the $2.05 billion currently produced at the 2.5
percent rate. Furthermore, the current 4 percent corporate rate would have to be
increased to 11.04 percent. When multiplied against the $13.8 billion corporate
base, the 11.04 percent rate would produce $971.5 million more than the $550
million currently produced at the 4 percent rate. These revised rates would
yield income tax revenues totaling $7.18 billion. Approximately $2.6 billion
would be retained by the state as income tax revenues and about $4.58 billion
would be distributed to local governmental units in lieu of the property tax.
This distribution scheme reflects the constitutionally mandated 8 to 5 ratio.
only the property tax extensions attributable to school districts are to be
recaptured through the state income tax, the current 2.5 percent individual rate
would have to be increased to 5.14 percent. At the latter rate the $82 billion
individual base would produce about $2.16 billion more than the $2.05 billion
currently produced at the 2.5 percent rate. In addition the current 4 percent
corporate rate would have to be increased to 8.22 percent. When
multiplied against the $13.8 billion corporate base the latter rate would pro-'
duce about $584 million more than the $550 million currently produced at the 4
percent rate. Of .the $5.35 billion produced at the revised rates, the state
would retain about $2.6 billion as income taxes and approximately $2.75
billion would be redistributed to school districts (including community college
districts) in lieu of the property tax. This distribution scheme, like
the one outlined above, reflects the 8 to 5 ratio mandated by the Illinois
of these revised corporate income tax rates in-clude the 2.5 percent personal
property replacement income tax.
Consequently, the total tax rate on corporations under the scheme to replace
all property taxes would be 13.54 percent. The total tax rate on corporations
under the scheme to replace only property taxes attributable to school districts
would be 10.72 percent.
let us know if we can be of further assistance.
Note: Mr. Minert’s signature did not scan by the OCR software.
Charles L. Minert
Senior Research Associate
Subject: Report Analysis by Joseph R. Oldani
following comments regarding Financing Local Government Through the State Income
Tax were part of the reference material given to the Illinois Senate Revenue
Committee Hearing in 1984 as part of Joseph R. Oldani Testimony.
Scroll down to find report.
assume the report uses taxable income figures and not adjusted gross income
figures for its total income base of $95.8 billion. The report apportioned this
figure to 82 billion individual base and 13.8 billion corporate base. The total
statewide property taxes 4.58 billion.
example: The 4.58 billion in property taxes was apportioned to 2.58 billion from
individuals and 2 billion from corporate property taxes. Now to find the average
percent of individuals’ net income they are paying in property taxes divide
2.58 billion by the individuals net income figure 82 billion equals 3.1 percent.
corporations divide 2 billion by 13.8 billion equals 14.5 percent. The ratio of
8 to 5 used in the state income tax does not equal the ratio of 14.5 to 3.1 for
this example. In fact corporations are paying an average of 4.7 times the
percent of individuals in property taxes using the income base figures of this
report. (14.5 divided by 3.1 equals 4.677)
is like trying to compare apples to oranges to assume the property tax can be
replaced with an income tax using the 8 to 5 ratio. We have to look at the
property tax in its present form to see the ratio of corporate to individual
replacement income tax. The example suggests the new state income tax percent
for individuals are 2.5 plus 3.1 equals 5.6 and for corporations 4 plus 14.5
equals 18.5. Therefore, 5.6% of 82 billion equals 4.6 billion and 18.5% of 13.8
billion equals 2.6 billion for a total of 7.2 billion.
in fact the corporate portion of the property tax total of 4.58 billion is
greater that 2 billion than perhaps some of there tax burden could be shifted to
individuals to help improve the corporate climate in the state.
Please have the report
expanded in these areas so we may discuss the results further.
Apportionment of the 4.58 billion in property taxes for individuals and
2. Adjusted gross
income totals for corporate and individuals. (Not necessary for the forgoing
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