* 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.
- Retired School Board Member - Tuesday, Apr 7, 26 @ 8:34 am:
School Boards are comprised of volunteers who are not experts in education, policy or finance. They are largely influenced and led by their superintendent and the IASB, Illinois Association of School Boards, which historically has been led by a retired superintendent and is now led by their former general counsel.
School boards are not encouraged to act as a body separate from the administration, but instead as part of the administrative team. Consequently, they rarely, if ever, stand up to the sup.
- TNR - Tuesday, Apr 7, 26 @ 8:40 am:
Closing the “luxury loopholes” seems like a better public policy approach than a millionaire surcharge via referendum. But it’s hard to say if it’s easier to sell politically.
I wonder if the “outlier cases” the report references could swallow up a lot of non-millionaire, upper middle class households. That could make the Democratic caucuses’ suburban members a bit nervous about raising taxes on their constituents. And while running a ballot referendum is always politically fraught, the idea of a straight “millionaire surcharge” might be more direct, simplistic, and easier to message. The graduated “fair tax” referendum lost, in part, because it was a bit complex and open ended. Could a proposal to close the “luxury loopholes” get stuck in the same when-you’re-explaining-you’re-losing muck?
I’m not sure, but it’s certainly worth consideration.
- Demoralized - Tuesday, Apr 7, 26 @ 8:42 am:
==and a whole lot of upper-income people are avoiding that bare minimum==
This is the same problem at the federal level. The wealthy shirk their tax responsibilities and the system is set up to favor them to allow them to do that. If we would simply make the wealthy pay what they owe then we could solve many problems.
- Candy Dogood - Tuesday, Apr 7, 26 @ 8:48 am:
Good on the Governor for not just going, “Welp, y’all voted against the Fair tax and now complain about what happened because you did that.”
Why doesn’t anyone want to talk about capping the retirement income tax subtraction?
- Steve - Tuesday, Apr 7, 26 @ 8:50 am:
- And I don’t think it’s just a millionaires tax.-
JB said it.
- Morty - Tuesday, Apr 7, 26 @ 9:35 am:
The Wirepoints guys are hyperventialing after reading this
- Juice - Tuesday, Apr 7, 26 @ 9:43 am:
PTELL reform also needs to be looked at. The way that it is structured now, if a district that is covered under PTELL basically has to increase their levy every year or from their perspective they forgo those revenues in perpetuity. Some sort of incentive or ability to recapture those revenues if needed should really be baked into the law so its not as much of a disincentive for a district to just max out on the levy each year regardless of their budget situation in that year. (Granted, many districts likely do need the revenue regardless.)
On the luxury loopholes, the devil is going to be in the details. But one thing that stood out was that further analysis is needed on taxes paid in other states (whether Illinois residents or out of state). That could likely be a big one for high earners. It’s also not clear at first blush how they are analyzing s-corps, which pay at the individual rate, so would want to make sure that is also excluded since business filings and individual filings are a different animal. (Not saying there that changes wouldn’t make sense, they would just need to be different.)
- ZC - Tuesday, Apr 7, 26 @ 9:54 am:
>> Why doesn’t anyone want to talk about capping the retirement income tax subtraction?
Because hyping the prospect of taxing retirement income was one of the things that sunk the Fair Tax referendum, right?
- Think Again - Tuesday, Apr 7, 26 @ 9:55 am:
“Individuals over $1 million AGI are paying State income tax on far less of their income than every other bracket.”
IL has a constitutionally imposed “Flat” income tax - the Dems within their supreme majority have the fix within their control- just raise the flat income tax rate to cover their spending plans
- RNUG - Tuesday, Apr 7, 26 @ 10:00 am:
== Why doesn’t anyone want to talk about capping the retirement income tax subtraction? ==
Because that is one of the few reasons for retirees to stay in Illinois. They sure ain’t staying for the weather …
- Three Dimensional Checkers - Tuesday, Apr 7, 26 @ 10:05 am:
The Economic Security Illinois memo references a legal memo about constitutional concerns raised by IDOR about their proposal. I cannot find that memo. I would imagine there could be issues if a filter earns most of their AGI from our of state income.
- JS Mill - Tuesday, Apr 7, 26 @ 10:30 am:
=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.=
That statement is true and false at the same time. It is true that the state has added over $2 billion but not every district has benefited in the same way. CPS by far gets the largest chunk of that money as do all other tier 3 and 4 schools. Tier 1 and 2 schools get 99% of the EBF funding. That means the Tier 3 and 4 schools get the base funding minimum plus a nominalincreae (last year our Tier funding was $12000, the year before it was a whopping $400). School costs are not tied to CPI, salaries and benefits, especially the cost of insurance, have been increasing at a rate greater than inflation for decades. The state also imposed a minimum salary of $40,000 contributing to increases in some areas (not saying it was a bad thing, just that it happened) and mandatory increases to minimum wage were more than the rate of inflation. Fuel and energy costs have fluctuated significantly as well.
Another factor is the PTELL law itself. It discourages a reduction in the levy. The 2008 housing crisis brought that home for many northwest suburban districts. PTELL is not a tax cap as it is often referred to, it is a limit on the actual extension to not exceed 5% or CPI whichever is less. AFter 2008, some found their tax rate double because districts were guaranteed to at least receive the same amount of money as the previous year. PTELL also disincentives districts from reducing the levy, lowering the rate because the new rate becomes the rate and if additional revenue is needed (via the lod rate) the district must run a referenda.
By failing to understand the costs that affect schools and how they increases differently than inflation, failing to understand the impact of the laws that past legislatures and governors created makes it easy if not a bit ignorant to throw schools under the bus.
=Consequently, they rarely, if ever, stand up to the sup.=
So the only people with the power don’t use it properly? Sure. Sorry but I call nonsense on that. They were elected and it is their responsibility to ask questions and keep their employee accountable. If they don’t then the superintendent is going to do what they think is right or possibly even unethically (also the superintendent’s responsibility).
Everyone wants to blame someone for the state of taxation in Illinois, especially property taxes. Politicians are going to blame anyone they can get away with blaming. The truth is, this took decades to create and it will (as the governor pointed out) take many things to improve. But the truth is, people will always complain about taxes. They always have and always will. So do what is right, not just placate a society that has always felt overly taxed since the beginning of our nation.
=distill any economic analysis from Martire=
You make my case for me.
- Candy Dogood - Tuesday, Apr 7, 26 @ 10:37 am:
===one of the things that sunk the Fair Tax referendum, right? ===
I don’t think that’s the case, but for folks who didn’t read between the lines the ‘luxury hoopholes’ proposal looks like it would subject wealthy folks whose income is mostly retirement income to a minimum tax anyhow. I only say that because their memo seemed a bit vague to me. I was expecting a list of tax expenditures that could be deleted from the tax code and got something much more wishy-washy.
===Because that is one of the few reasons for retirees to stay in Illinois.===
There is a ton of data and research that demonstrates that that isn’t true.
People usually don’t move for what amounts to be a ~5% change in their income and the subtraction is for federally taxed retirement income because actual retirees in poverty see zero benefit from the subtraction.
But go ahead and champion millionaires paying little or no taxes just because they’re retired while us working stiffs have to pay taxes to pay for the services they got 30 or 40 years ago when they refused to support politicians that adequately levied to pay for the services they demanded.
- Oldtimer - Tuesday, Apr 7, 26 @ 10:38 am:
School consolidations are very rare, and Illinois still has about 850 districts. It’s time to offer some significant incentives to get low enrollment and non unit districts to consider consolidation.
Lincoln, with a population of under 15,000, has 3 or 4 Elementary districts and 1 High School District. There would be considerable administrative savings if they became a single Unit District.
- DuPage Saint - Tuesday, Apr 7, 26 @ 11:08 am:
Maybe we should have a state lottery to pay for schools /S
- Walker - Tuesday, Apr 7, 26 @ 11:09 am:
Juice: That idea to remove the incentive to max out your PTELL opportunity in the future by taking the max PTELL allowed levy now, is a common practice among financial managers in school districts. We passed a law five or six years ago to make that incentive disappear. What you levy now, if below the PTELL limit, will not impact your future limits.
Unfortunately that state law seems to have had little impact, locally and I’v been told directly by more than one financial manger in the public education world, :”If I ever didn’t take the max levy allowed without referendum, I wouldn’t get another job in this field.”
Just like any human endeavor focused on group success, and justified by helping others, there is never enough money to meet the “critical needs” as imagined by insiders to the public education management establishment.
I am closer to JB on this ,than Rich or Martire.
- Dragnet - Tuesday, Apr 7, 26 @ 11:15 am:
Maybe if the State would STOP the under and UNFUNDED mandates then Schools would not have to levy as much to pay for these mandates? It is NOT the major driver of costs, but these mandates are part of the problem
- Rich Miller - Tuesday, Apr 7, 26 @ 11:27 am:
===/S ===
Glad you added that because the Lottery doesn’t generate anywhere near the revenue needed to fund schools.
- very old soilT - Tuesday, Apr 7, 26 @ 11:29 am:
Dragnet, can you give some examples?
- Candy Dogood - Tuesday, Apr 7, 26 @ 11:45 am:
===STOP the under and UNFUNDED mandates then Schools ===
Everyone likes to blame “unfunded mandates” in education, but most regulation and law exists as an unfunded mandate. No one is paying me to stay reasonably within the speed limit. No one is paying me to avoid committing burglary or arson.
No one pays me to cut my lawn. No one pays me to stop my domicile from being condemned. No one pays me to avoid dumping used motor oil down the storm drain.
If you show up with this kind of nonsense you should make your demand clear. You want the state to increase very one’s income tax with the hope that school boards will lower their property tax levy.
Some of y’all can’t seem to get past the idea that there is no magic free money to fund education and have a real hard time understanding that the politicians that promised you free money created billions of dollars of debt that we have to deal with right now too.
You want more state funding for K-12 education? Figure out who the state is going to tax to pay for it.
The problem isn’t that Illinois wants cake for breakfast. The problem is Illinois never wants to pay for cake to have for breakfast and spent decades electing people that decided to make someone else pay for the cake later.
It’s later folks. We have to pay for today’s cake and the cake someone else ate 30, 40, or 50 years ago.
Showing up here with this “unfunded mandates” nonsense does not contribute to the conversation about how we pay for our cake and even if we decide no more cake for anyone ever again, some of us are still paying for Grandpa’s cake while he has a higher income than we do because he’s living off of retirement and will some day be participating in one of the largest generational transfers of wealth because no one forced him to pay for the cake he was eating in the 1980s.
- Our Joe - Tuesday, Apr 7, 26 @ 11:52 am:
Oldtimer called it. This is the cost of having as many school districts as we have. EBF will never have enough money in it to overcome the inefficiencies of such a system.
- yinn - Tuesday, Apr 7, 26 @ 12:38 pm:
==a district that is covered under PTELL basically has to increase their levy every year or from their perspective they forgo those revenues in perpetuity==
Abatement could be the mechanism for now. Levy the full entitled amount under PTELL, but then abate the unneeded portion. Our district did this with a new construction windfall when firm public pressure was applied. My city routinely abates debt and corporate levies and only collects for pensions as a matter of policy.
- Sue - Tuesday, Apr 7, 26 @ 1:20 pm:
Kind of ironic Pritzker criticizes upward property taxes when he just unnecessarily imposed a huge bump for Chicago to pay for his pension changes for police and fire depts- Chicago has only one way to pay for his new mandate- raise property taxes- a good amount of property tax is controlled by Spingfield routinely imposing unfunded mandates onto municipalities
- Sue - Tuesday, Apr 7, 26 @ 1:29 pm:
Curious as to the particulars of this minimum tax study- Illinois has very few deductions to allow for income avoidance- if the study is throwing in either treasury interest or retirement income for wealthy taxpayers reducing their tax bill- the proposal To include those into the mix to tax million plus folks obviously isn’t going to work- the simplest fix is just raise tge flat rats to 5.5 or 6 and increase the standard deduction as the deduction disappears for high income filers
- Dragnet - Tuesday, Apr 7, 26 @ 1:59 pm:
Very old soil- let’s start with transportation and special education mandates, curriculum mandates by the handful, and many more.
- Chicagonk - Tuesday, Apr 7, 26 @ 2:14 pm:
Why target 3%? Why not 1% of income over $500K? I think you have to be careful with millionaire taxes because millionaires can easily relocate. An individual that might sell his business and have a high AGI in a year would be strongly incentivized to relocate to a low tax state like Florida for a year to avoid an additional 3% tax.
- JS Mill - Tuesday, Apr 7, 26 @ 2:28 pm:
=Everyone likes to blame “unfunded mandates” in education,=
The possibility of requiring schools to pay paras unemployment for breaks longer than two weeks is a prime example. Not a law yet but if it does pass, it will be a large unfunded mandate.