* Gov. Pritzker was asked last week if he supported a constitutional amendment to impose an income tax surcharge on annual income above a million dollars a year to alleviate the state’s high property taxes…

Well, I want to remind you that property taxes are not determined by the state of Illinois, but rather by local governments.

Indeed, local units of government, including school boards, park boards, library boards, municipalities, etc. So I think people sometimes get confused.

I know the Republican Party in Illinois is quite confused and thinks that this is a state issue when it is actually a local issue.

And I, as you know, the number one largest piece of a property tax bill is schools. And the reason that Illinois has had such high property taxes historically is because the state government has gotten out of the business of funding schools. It had anyway, before I became governor. When I became governor, we, I think had the lowest percentage of education funding coming from the state of Illinois, the state of any state in the United States. We were the lowest.

We’ve now gone from about 24% to approaching 40% of school funding coming from the state. One of the purposes of that is to alleviate the burden on local governments, on local school boards, and on people who are paying property taxes locally.

But you know what? School boards didn’t take the hint. And so they’ve continued to ratchet up property taxes over and over and over again. And that has led to a continued very high tax burden on homeowners across the state.

As to the question of, of the whether a millionaires tax or graduated income tax or some other that’s been discussed could alleviate the burden on property tax, it could.

I will say that, you know, there’s about, as I understand, about $35 or $37 billion of local property taxes that gets paid. And as you know, whatever gets proposed here probably is not going to entirely be dedicated to property [taxes]. But even if it were and it was a couple billion dollars, you’re still talking about $37 billion of property tax is being alleviated by a couple of billion dollars of state money.

So it takes a lot of things, just like in dealing with pensions. You have to go at it from 3 or 4 or 5 or 6 angles in order to try to reduce the burden of local property taxes.

Look, at this point, if we could just keep property taxes from going up, that would be huge benefit to people across the state. Instead, every year it seems property taxes just go up and up and up and we’ve got to deal with that problem. And I don’t think it’s just a millionaires tax. If that were to happen, that would be the the answer.

It requires local governments, local schools to take into account that they are getting, at least under my administration, $2.5, $2.4 billion more every year in school funding from the state already. And that should at least in part, provide some impetus for keeping property taxes from going up.

Please pardon any transcription errors.

* Pritzker is right about the sheer magnitude of the problem, and he showed a high level of sophistication about how to solve the overall problem. But he’s dead wrong about school funding.

Yes, he’s presided over a large, compounded annual increase in school funding under the Evidence-Based Funding formula signed into law by Bruce Rauner. But it’s so far not providing enough revenue to allow school districts to hold the line on local taxation.

* Ralph Martire…

[School] districts could theoretically limit spending increases to inflation — if Illinois schools were adequately funded. They aren’t. In fact, education funding in Illinois is currently $3.2 billion less than what the evidence indicates is required to provide every child a quality education.

Moreover, as the [Cook County treasurer’s report on property taxes and state school funding] notes, Illinois ranks last in the nation in the portion of K-12 education covered by state-level tax revenue. That pushes the primary burden for funding schools down to local property taxes. So it’s no wonder schools increased property tax levies at rates that outstrip inflation — it’s the only way they could fund needed educational programming.

School districts can’t really start addressing property taxes until they are adequately funded according to the state’s own statutory formula. Under the current tax regime, that’s not gonna happen until 2039.

There’s no way the state can provide significantly more funding with existing revenues. It’s simply impossible.

* The proposed constitutional amendment could bring schools to that sweet spot much faster. Capitol News Illinois…

A study published [last month] by researchers at the Illinois Economic Policy Institute and the University of Illinois at Urbana-Champaign lays out some of the potential benefits of a millionaires tax for Illinois.

The report, authored by ILEPI’s Frank Manzo and UIUC professor Robert Bruno, found that a 3% surcharge on income over $1 million would generate $3.8 billion in its first full year and $4.2 billion by 2030 — revenue estimates the researchers labeled as “conservative.”

The study by the left-leaning think tank explores three options for spending the cash: dedicate it entirely to property tax relief, fully fund the state’s Evidence-Based Funding formula for K-12 schools or a hybrid approach that’d freeze property taxes for schools while increasing education funding. […]

Option 2 would increase the state’s annual contribution to K-12 schools by more than $3 billion. Lawmakers have slowly increased annual education spending by $2.5 billion since EBF was enacted in 2017, typically with a minimum $300 million increase year-over-year. At that rate, school funding adequacy wouldn’t be achieved until 2039. But under this plan, it would be done in 2028.

It would also leave funds left over, which researchers suggest could be used for property tax rebates.

They predict that the increased EBF would indirectly stem the rise in property taxes by accelerating the shift in the funding burden to the state.

* But the state may not even need to go through the hassle of holding an expensive and iffy referendum to significantly boost education funding by changing the Illinois Constitution. A proposal has been circulating for a while now to close what are called “luxury loopholes”…

The following memo analyzes changes to the calculation of taxable income to ensure tax filers who earn over $1 million annually pay the State’s flat income tax on a minimum of a third of their gross income. Estimates utilize FY22’s tax data (CY21).

When calculating the amount of income to which Illinois’ personal income tax is applied for 98.77% of all filers, the ratio of taxable income to adjusted gross income (AGI) is about 70%. If we include the top 1.3% of earners - individuals who make over $1 million annually - that ratio drops from about 70% to 47%.

Individuals over $1 million AGI are paying State income tax on far less of their income than every other bracket. Individuals with $1M AGI collectively make up a total $626.3 billion in AGI, but have a taxable net income of $161.9 billion. At just 26% of their bracket’s AGI, millionaire filers have an average taxable income far below every other filer in Illinois.

Setting a minimum net income to at least a third of base AGI for filers over $1 million would increase the taxable net income for millionaires alone, resulting in up to $2.32 billion in net new revenue. On average, this would result in an increase of taxable income by about 7% for millionaires. While some households may see a more substantial increase in their taxable income, one solution is to cap year-over-year increases. By doing so, the State maximizes revenue while smoothing year-over-year impact for outlier cases.

It’s not a horrible idea. We have a flat tax and a whole lot of upper-income people are avoiding that bare minimum. This would tax just a third of their adjusted gross income. Also, Pritzker has supported some of these same loophole closures in the past.