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* Dan Johnson-Weinberger has the setup…
The real reason why our state and local governments are broke is because we’re taxing the wrong things. We have a great tax for the 1950s economy, but in 2007, our taxes need to be modernized.
We use the sales tax to fund a big chunk of state and local government. In Illinois, we only tax goods, not services. That means if you buy a bowling ball you pay a sales tax but if you go bowling you don’t. More and more of our economy is about selling services instead of goods, so the relatively few people still selling or buying goods end up with the bill while the increasing group of people selling or buying services gets a free ride.
The sales tax rate on goods has to keep rising to try to generate the same amount of money, since less and less economic activity flows through the sale of goods and we don’t tax services.
There are 168 possible services that states tax. We tax 17 of them. Iowa taxes 94. Every other state in the Midwest taxes more services than we do. The Federation of Tax Administrators in DC put out that data recently, and you can check it out yourself here.
* The Question: Do you agree with this logic? Explain fully.
posted by Rich Miller
Thursday, Oct 25, 07 @ 10:17 am
Sorry, comments are closed at this time.
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I read that post, I’ve never been a fan of taxes, however, I can agree with his logic. I have to ask if the GRT was designed to address that. From what I know about it, it seemed to be. Perhaps there should be taxes on not just goods but also the services as well.
Comment by Levois Thursday, Oct 25, 07 @ 10:22 am
I think a simple increase in taxes is what’s necessary at this point, but some other things should be rolled back at the same time.
Lower the sales tax a point or two, as a start.
Comment by jerry 101 Thursday, Oct 25, 07 @ 10:26 am
Especially with Chicago being a big financial and legal center, it only makes sense to tax services. There can be problems enforcing taxes on small-scale cash transactions (plumbers paid in cash, etc.), but a reasonable tax on corporate services makes plenty of sense as long as it’s comparable to what people in possible alternative cities pay — don’t want to drive the CBOT to Wall Street.
Plus, we could get creative. A tax on throwing junk pitches that work the count up from 0-1 to 3-2 would gain us millions a year just from Zambrano…..
Comment by Muskrat Thursday, Oct 25, 07 @ 10:29 am
“Take my advice before you die. Declare the pennies on your eyes…”
The tax system is this state is goofy. While there may be no state tax on services, local municpalites can tax amusement and user items like video rentals, movie theatres, golf rounds, bowling games, ect. so we get hit anyway with local taxes on those items.
Comment by pickles!! Thursday, Oct 25, 07 @ 10:30 am
Yea - GRT was supposed to address this issue.
They tried. It failed.
Too much money in all those service sectors to lobby against it.
Comment by GoBearsss Thursday, Oct 25, 07 @ 10:33 am
The inevitable search for revenue and the justification for specific taxes remains unending. Each and every year the legislators are presented with a list of most palatable taxes. We are noe approaching an era whereby it becomes more and more a excersise in futility to explain why we need to expand this next tax.
The ultimate issue is spending. We are all guilty of suggesting that the government take care of this or that, despite the known inefficiencies.
Several things need to happen.
One is that we need to bring in some of that business acumen that has been trimming corporate staffing while maintaining productivity.
Secondly we need to place some boundaries as to what government is willing to do for us. Currently government is the sugar daddy of all good causes. Charity is one thing when it is voluntary, but the public pocketbook is not the place for manditory charity.
Third and final for today, we have to start consolidating all the taxing bodies we have in this state. The Boards tend to be enthusiasts for their activity and have taxiing power in the property tax. A serious and honest effort needs to be done to streamline away the overhead for the services. Each and every one of these entities has a Board, facilities, administrative staff that could be thinned without effecting the services provided to the constituents.
All this overhead is also compensated royally. It is time to bring public salaries and benefits to that of the private sector.
Comment by plutocrat03 Thursday, Oct 25, 07 @ 10:35 am
If DWJ is advocating it, then there must be something wrong with it.
Comment by JWD Thursday, Oct 25, 07 @ 10:36 am
For one simple reason and one simple reason only I think the Income and Property taxes should be increased and other taxes lessened.
Federal deductibility. You can’t write sales taxes or other fees off your federal taxes. I would drop sales taxes so that they were equal to or less than any neighboring state.
It’s not a perfect solution, but at least more money would be left in Illinois.
There are good arguments for various taxes, but to me the federal deductibility is the main issue.
Comment by irishpirate Thursday, Oct 25, 07 @ 10:36 am
Taking a quick look at census business data:
http://censtats.census.gov/cgi-bin/cbpnaic
Top 6 sectors for Cook County (by % of total payroll spending)
15% Finance
13% Professional, Scientific, Tech
11% Health Care
10% Manufacturing
7% Wholesale Trade
6% Management of companies
That means that #1, #2, #3 and #6 of our top sectors pay little to no sales tax. Include them, but reduce the rate, and you can get it passed.
Comment by Kuz Thursday, Oct 25, 07 @ 10:47 am
You can deduct sales taxes. That was recently changed. But of course you can’t deduct both income and sales.
Comment by Greg Thursday, Oct 25, 07 @ 10:53 am
We must always reform and update our tax system. So, naturally this is logical. On the other hand, what we have been seeing is not a reform that eliminates or greatly reduces a tax, but we see a so-called reform create a new tax and leaving the previous taxes too.
We have been discussing tax swaps and so far it has stalled in Illinois. This kind of work requires leadership that we do not have in Springfield.
The GRT died because it is a stupid tax and an obsolete tax that we have been seeing eliminated throughout the US since the 1930s. Its revitalization is a boon only to politicians and lobbyists. The GRT is such a stupid tax, that as the state of Washington has discovered, that it can actually inflate a state’s gross state product beyond reality. Additionally, the massive lobbying efforts needed to continually fix the inequalities with a GRT is a boon only to lobbyists who work state legislators daily.
So the GRT is damn stupid and died because it was tried and had been shown to fail repeatedly 40-50 times over the past 90 years.
But we need tax reform - yes. But I do not want taxes “reformed” by a bunch of people who believe that taxes are a good thing or a necessary thing. I want people who hate taxes reforming our tax laws. Only with these kind of people can citizens not get royally screwed. Every tax dollar taken from your pocket leaves you with less freedom to make personal choices. Got that?
Comment by VanillaMan Thursday, Oct 25, 07 @ 10:54 am
Ralph Martire has been preaching (correctly) about the logic of taxing the modern economy for years. Dan does a decent job of making his point. If it wasn’t such a horrible political environment for a CON-CON, this would be a focal point.
Comment by CTBA Thursday, Oct 25, 07 @ 10:55 am
There are a lot of different ways to look at taxation. Trying to do some homework, I’ve so far written about a couple at http://www.citybarbs.com/?p=48, where among other things I compare Illinois property taxes with Indiana’s, and
http://www.citybarbs.com/?p=62 where I discuss corporate tax dodges.
Service taxes deserve a look too. It’s past time to decrease our overdependence on household real estate taxes.
Comment by yinn Thursday, Oct 25, 07 @ 11:00 am
But I do not want taxes “reformed” by a bunch of people who believe that taxes are a good thing or a necessary thing.
If you want to live in a country without taxes, I’m sure Saudi Arabia are UAE would love to have you. Otherwise, I think you’re going to be disappointed.
Comment by Kuz Thursday, Oct 25, 07 @ 11:05 am
Dan is a leading advocate of reform in this state. He brings up a topic that should be seriously discussed. Just because the GRT was a disaster doesn’t prove that no other services should ever be taxed.
Comment by CICERO Thursday, Oct 25, 07 @ 11:05 am
The problem with the current tax system is that it doesn’t take the growing wage gap into account and fails to progressively tax at any level–local, state, national.
The rich are getting away with murder in the tax sense.
Democrats are increasingly guilty in bringing this about because increasingly their campaign donations come from the uber-wealthy who are trying to buy them off…and do. The Democrats are as easily purchased as the Republicans.
Charles Rangel has some interesting ideas on the national level including a surcharge on AGI’s over
$200,000. We should be considering that in Illinois. The wealthy plutocrats who run this state will squeal like the piggies they are but
a progressive income tax coupled with a major reduction in property taxes would still provide
mega-funds for all their porky projects and patronage, uh, civil service jobs for their relatives and friends.
Comment by Cassandra Thursday, Oct 25, 07 @ 11:10 am
Yes!
Lower the sales tax and start taxing more services. The State will actually bring in more money. Also a tax on services are more progressive than a tax on goods.
Comment by ahoy! Thursday, Oct 25, 07 @ 11:10 am
I generally agree. If you look at our society we have moved away from a provider of goods and manufacturing (since this is done cheaper in other countries) to a provider of services. So as a general proposition why are we not taxing lawyers, accountants, plumbers, etc.
There is a possible logical flaw though. The source of the tax revenues is still the buying public. So instead of paying a 10% sales tax on a bowling ball, I pay 2% tax on my bowling ball, dinner, movie, plumbing work. In the end I am still the source of the money, they are just nickle and diming it from a larger variety of services.
so in the end it seems a bit of 6 of one half a dozen of the other.
Comment by Ghost Thursday, Oct 25, 07 @ 11:13 am
You’d think McDonalds and Boeing would want to change this - 9% tax on a Big Mac, but 0% on a lawyer, personal trainer, or private SAT tutor? What gives?
Comment by Kuz Thursday, Oct 25, 07 @ 11:14 am
Our tax structure is based on a 1920s - 1950 perception of our economy. Long overdue to a shake-up. Taxes are not intrinsically evil; taxes are how the cost of essential government services are distributed through the area population.
There are two major gaps in our tax system today, compared to the modern economy: (1) we are now a much more a services driven economy than a manufacturing / sales one, and, (2) the increase of immigrants is bringing along with them an underground economy where “a friend” fixes your car or plumbing and no paperwork or taxes get assessed. Cash transactions.
The way to slip towards taxing services is to start with those services where a sales tax is already being collected for a portion of the activity. Get an oil change, and you pay taxes on the new oil put in but not the wrap-around service - and the oil change business is already collecting state sales tax. Add to that: movies (you already pay tax on the more profitable popcorn and the theater collects and pays that tax), hair styling and barbering (every shop sells hair products and collects the tax on them), plumbing visits (you pay tax on the new plumbing system parts installed)and air conditioning / heating system calls. I would add TV repair visits, but those hardly happen anymore.
Home and office cleaning services, too, since they use cleaning supplies. Start with these in 2008, see how much they raise, and then gradually spread them to other private sector services as a “use” tax sales tax.
On taxing the growing underground economy — I have no idea!
Comment by capitol view Thursday, Oct 25, 07 @ 11:15 am
An idea just occured to me. Want to help the CTA? And you don’t wanna raise sales taxes on the region? How about a tax on services in the region.
Comment by Levois Thursday, Oct 25, 07 @ 11:17 am
“The wealthy plutocrats who run this state will squeal like the piggies they are…”
Come on, Cassandra, that’s no kind of argument. Why such hostility to high-earners? Some of you guys should really visit me some time, I’ll show you around a couple downtown funds, you can take a look at how hard these people work and the kind of taxes they pay, and then say it to their faces.
In the meantime, don’t expect that raising marginal income from 35 to 44 effective (per Rangel’s proposal) will raise federal revenues substantially.
Comment by Greg Thursday, Oct 25, 07 @ 11:20 am
There is a paper about lowering the tax rate and bringing in more revenue at:
http://www.ctbaonline.org/All%20Li
nks%20to%20Research%20Areas%
20and%20Reports/Budget,%20Tax%
20and%20Revenue/Expansion%20
of%20the%20Sales%20Tax%20Updated.pdf
Comment by BLAH Thursday, Oct 25, 07 @ 11:59 am
Thanks BLAH -
Seriously, start with attorney fees. If there’s anything our culture is addicted more than smoking, it’s lawyers.
Comment by Kuz Thursday, Oct 25, 07 @ 12:06 pm
But the all the attorneys would sue the state of course!
Lobbyists baby!
Comment by BLAH Thursday, Oct 25, 07 @ 12:45 pm
Just realized my link didn’t go through,
http://www.ctbaonlin
e.org/All%20Links%20
to%20Research%20Are
as%20and%20Reports/Budget,%
20Tax%20and%20Revenue/Expansion
%20of%20the%20Sales%20Tax%
20Updated.pdf
Sorry - you have to copy and paste.
Comment by BLAH Thursday, Oct 25, 07 @ 12:47 pm
“Blah,” please don’t post those long links. Learn how to use the easy tool of html hyperlinking. Those long, raw links screw up the page in a big way.
Comment by Rich Miller Thursday, Oct 25, 07 @ 12:48 pm
The rich pay the most taxes the top 5% income pay almost 57 percent of taxes collected and the top 10% pay over 65% of taxes collected while the bottom 50% pay less tha 3% of income taxes collected. The bottom 20% income or so pay no income tax and get tax credit. I hate the idea of an increase in income taxes because you penalize people for working hard ( I have two jobs) and reward the people who dont work. Consumption taxes are a better option let smokers pay for healthcare and sales taxes are a steady source of revenue. That being said Crook Co already has one of the highest sales taxes in the country and where does all that money go, Strogers friends Daleys donors waste is the problem. I would like to see a small increase in fares for the transit system and consolidate the three agencys CTA Pace Metra to get rid of overlapping managment,and consolidate purchasing power for savings. then look at what is really needed and A tax hike might be acceptable
Comment by FED UP Thursday, Oct 25, 07 @ 1:25 pm
In theory, it makes sense to tax services as well as goods. The bigger issue is understanding what we are using tax revenue for. If I was a member of Cook County, I’d have a pretty big problem with tax increases of any kind. If the government is inept at making sound decisions on how to use taxes, does it really matter where they come from?
Comment by Elmhurst 1 Thursday, Oct 25, 07 @ 1:32 pm
Any economist can tell you that the best tax system is one that raises only the money it needs, is broad-based, non-regressive, stable, and the lowest rate possible.
Like a good investment portfolio, it also needs to be diverse.
Comment by Yellow Dog Democrat Thursday, Oct 25, 07 @ 3:24 pm
Just remember that by taxing services you do get to tax lawyers, but you also tax the small shoe repair business at the same time.
Comment by one of the 35 Thursday, Oct 25, 07 @ 3:33 pm
I have to take issue with Capitol View’s remarks that immigrants are bringing with them the idea of gray-market cash transactions. That kind of activity has been around for decades, has been a tax enforcement problem for decades, and is engaged in by all sorts of people, including Joe Dimaggio, who was famous for signing autographs for (undeclared) cash.
Comment by Muskrat Thursday, Oct 25, 07 @ 3:53 pm
As always, an excellent analysis of part of the problem today, Dan. Good job and excellent comments from other. Surely we can find a way to work it out…
To the single nasty comment, where is your plan? What have you produced other than another nasty comment? We have enough of that in leadership right now. All nasty, no substance.
Illinois deserves more.
Comment by FAN of CAP FAX Thursday, Oct 25, 07 @ 3:56 pm
Yellow Dog has the right slogan: wider base, lower rate. That was the mantra behind the Reagan-era income tax reforms, after all, but in the time since then the GOP has forgotten the first part of it and become the “all tax cuts, all the time” party.
Comment by pc Thursday, Oct 25, 07 @ 4:27 pm
Merchants get to keep 1.75% of the sales tax they collect from consumers. If that practice was stopped, and that money turned in to the government, there would be a good increase in the tax funds collected without raising any of the taxes. This percentage is to “pay” merchants for collecting the tax and then filling out a simple form and mailing in a check. It is required by law to be done, so why pay the merchants for doing it?
Comment by BBishere2 Thursday, Oct 25, 07 @ 5:00 pm
Thanks Rich and most commenters for the discussion. One point I intended to make more cleanly is that that it’s potentially easy to balance a lot of budgets (state, county, transit, municipal) with a modernized sales tax that includes services as well as goods. I think our spending should be modernized as well (particularly with consolidation of local governments and a commensurate reduction in overhead), but I don’t buy OneMan’s argument that only tax-haters should be tax reformers. I think saying you are against taxes is like saying you are against prices. It’s all about what we’re buying. And often we enhance freedom when the government buys something for all of us. For example, with the expansion of Medicaid, a lot of families are free of the threat of medical bankruptcy. That’s a good thing. If the government bought health insurance for all of us, we would all be free to take a job or start a business without factoring in how we’d get our health benefits. That one is one of the heaviest burdens on our economic freedom today, as lots of people feel trapped to stay in a job they don’t like in order to keep their health insurance.
Anyway, I suspect that a lower state sales tax rate combined with an expanded base would bring in new revenue and meet with majority political support among the electorate. I think the many critics of the Governor should offer him some credit for identifying the problem of a 1950s tax system and embrace modernization. We do not need to wait until 2011 to modernize our taxes.
Comment by Dan Johnson-Weinberger Thursday, Oct 25, 07 @ 5:04 pm
I was following the original post until I saw this in the second paragraph: “…relatively few people still selling or buying goods…”
Who among us has not bought food, clothing, a car, an electronic gadget, or SOMETHING if not many, many things during the past year? If this is a consumer-oriented society (which I think it is), everybody’s still buyin’. Internet and mail order sales are way up and they are slipping under the taxman’s net, but this could be fixed if the will was there. Sure, there are opportunities to tax more services; this is correctly viewed as robbing Peter to pay Paul, as the consumer will have less disposable income after paying the service tax to pay for consumable and durable goods (unless the service providers cut their rates to equalize the end price).
Comment by Six Degrees of Separation Thursday, Oct 25, 07 @ 6:04 pm
A fable of my own…A state in dire need of money due to
inept spending practices, run away salary and pension benefits and an idiot
executive decided one day to tax people based on the amount of knowledge in
their brain. As a starting point, the strong willed Governor with an 84%
approval rating decided that Google had siphoned away the money from the good
high paying jobs of his constituents and thought, why not tax on Google each
time our resident’s found something?
He declared God was on his side in this debate, “because
clearly, as a society, we’ve become less productive and found that there a worse
life for people since Google became ubiquitous.” Rather than tell people,
that the future was in developing services to complement Google or inventing the
next new thing, he called the developers and owners names like ‘evil-doers’ and
‘fat-cats.’
The people bought into the rhetoric.
The result was the dire state became the dark state and
was the only spot on Earth where you couldn’t Google.
While I respect the position of trying to look at the
taxing issue we have in this state and country, the fact is a tax on service
becomes a tax on knowledge. The reason you have someone perform a service for
you, is that they can do it better, faster i.e. productive than you can. Thus a
tax on services is a tax on specialization and knowledge, and the quest for
increased productivity.
The argument is made that lawyers, bankers, architects and
yes, even journalists, don’t have to pay taxes and as such have a free ride. In
today’s economy ask yourself, where are the high paying jobs and where does the
future lie? Will Illinois’ have a larger tax base if we have scores of lawyers,
or whatever profession that has yet to be created, coming to or flocking in our
state?
We can choose to incentive brining knowledge into the state
or we can choose to penalize those with the most knowledge and the ability to be
productive. Maybe we could slap a graduation tax on all those smart-e-pants
college graduates who will go perform work in a service sector job, after all
they are the one’s really cheating the system. Don’t forget those professors
too; you can tax them on a per pupil basis.
The sales tax is fair, no matter who you are you pay and no
matter who you are, you pay the same rate. The same isn’t so for property tax
or income tax. If anything we should be discussing raising the income tax,
after all it’s low, after we talk about raising the sales tax.
You want the income tax to create more revenue for the
state, stop taxing businesses and get them to move and expand here!
Comment by Don't Tax My Brain Thursday, Oct 25, 07 @ 6:24 pm
Re: Cassandra - Thursday, Oct 25, 07 @ 11:10 am:
The problem with the current tax system is that it doesn’t take the growing wage gap into account and fails to progressively tax at any level–local, state, national.
The rich are getting away with murder in the tax sense.
————–
When people talk about taxing the rich I always wonder what their definition of rich is. I suspect they think of it in terms of some multiple of their income. After all, everything is relative. I am curious as to whether that multiple is consistent across all income levels. Hey Rich (Miller that is) how about starting a thread on this issue.
Comment by late night anon Thursday, Oct 25, 07 @ 6:28 pm
Services such as lawn care and other “non essential” activities should be taxed.
Comment by Way Northsider Thursday, Oct 25, 07 @ 6:47 pm
The envy that is exemplified by Cassandra is chilling.
I fail to see where the rich she refers to are getting away with anything. As pointed out earlier in this thread the top 5% pay 57% of the income taxes in the country. So what case of murder are you talking about?
The irresponsible thing about adding taxes to Illinois is that there is no spending reform. The excesses of staffing , compensation and pensions will continue unabated and consume any new revenue in a heartbeat.
Lets get away from the politics of envy and reform how we spend our money before we raise the taxes.
The scary part of who pays taxes is that the 50% who pay the 3% already get more in services than they pay. What is their incentive for reigning in spending? As far as they are concerned more governmental programs are free…… of ourse they will vote for more free stuff.
Comment by plutocrat03 Thursday, Oct 25, 07 @ 7:00 pm
The bottom 50% of income pay only 3% of income taxs collected. What is amazing is that this would be the group using most t of the free social services provided by yhe govt. Most people who make alot of money have to work very hard to do so, to villify them and punish them for hard work seems stupid. and no Im not rich yet
Comment by Anonymous Thursday, Oct 25, 07 @ 7:38 pm
Uh, plutocrat 03.
How do you know I’m not one of the favored one?
One’s views of the tax system are not necessarily a function of one’s income or “envy.”
Way too simplistic.
Comment by Cassandra Thursday, Oct 25, 07 @ 7:59 pm
Illinois should tax political dilettantes and little would-be policy wonks for their “services”. First because there are so many of them– a very lucrative tax base; and second because every one has to endure their brilliant theories of governance. This is just one of the reasons why Israel has a mandatory draft.
Comment by Anon Thursday, Oct 25, 07 @ 8:53 pm
Would you pay 10% more for a haircut, or would you start cutting your own hair? Most people tip that much anyway.
Would you pay 10% more for a carwash, or wash it yourself?
There are lots of services that should be taxed, and if you don’t want to pay the tax, you don’t have to.
Comment by 47th Ward Thursday, Oct 25, 07 @ 9:20 pm
Rater give the money to the individual who provided the services than to give it to Stroger, Blago or Daley so they can redistribute it to their friends and relatives. Besides the barber pays income taxes remember and he might spend that 10% tip on something that will generate wealth and sales tax. You guys really need a lot of money don’t you? In the 21st century, local government in Illinois turned into the outfit.
Comment by Anon Thursday, Oct 25, 07 @ 9:53 pm