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Tax the Rich

They might complain? Liuetenant governor Pat Quinn says, "So what?"



Illinois schools are underfunded, but Lieutenant Governor Pat Quinn has a solution--soak the rich, though he and his aides prefer to call it a Robin Hood solution. Quinn, a Democrat, wants to double income taxes on the state's wealthiest taxpayers and use the money to finance schools and to offer a property-tax rebate. "There's a principle as old as the Bible--taxes should be based on the ability to pay them," he says. "I'm not the only politician to say it. One hundred years ago we had a Republican president named Teddy Roosevelt, who was a big supporter of that principle. Before that we had another Republican president who believed taxes should be based on your ability to pay--Abraham Lincoln."

Quinn's plan is just one of several tax-reform ideas floating around at the moment. Cook County assessor James Houlihan has two proposals, and state senator Miguel del Valle is working on one, as are several think tanks and advocacy groups. "We've reached a critical stage where people are starting to realize something has to be done," says Barb Head, president of the Tax Reform Action Coalition, a local group that's pushing for a property-tax cut. "When in recent history have you seen this kind of interest? Everybody's talking about tax reform."

The details of the proposals vary, but almost everyone agrees on what the problem is. They say the state's system of taxation is too regressive, putting too great a burden on those who can least afford to pay. The income tax rate, for instance, is fixed at 3 percent, regardless of one's income. "The data shows we're one of the most regressive states in the country," says Ralph Martire, executive director of the Center for Tax and Budget Accountability, a bipartisan advocacy group based in Chicago. "It's not fair, and it's not healthy."

It's also not prudent. For years there has rarely been enough money coming in to pay the bills, and now the state is on the brink of a breakdown, with a current deficit of about $5 billion. Martire describes the problem as a "structural deficit. It's really a simple concept--the current max of tax revenue can't continue to maintain the current level of services. So every year you have to either cut back services or raise taxes. There's no choice there."

Under this system public education has suffered the worst cuts. The state now covers only about 37 percent of public education costs, one of the lowest rates in the country, and that has pushed the burden onto local property owners. But the property tax is inequitable--wealthy communities wind up with much more money for their schools than poor communities. Moreover, it doesn't take into account a property owner's ability to pay. As Head points out, rates are determined by an assessment that's based on recent housing sales in the area. "If your neighbor sells his house and makes a pile of money, your assessment goes up," she says. "But that doesn't mean your income has gone up. That doesn't mean you can afford to pay more in property taxes. It simply means you're being assessed for your neighbor's profit."

As property taxes rise, taxpayers revolt, which has started to happen in Chicago. Politicians and school officials are faced with a cruel choice: accept a taxpayer rebellion or accept a further erosion of the public school system. "Our tax system is much too reliant on property taxes," says Martire. "We raise more money from property taxes each year than from sales and personal income taxes combined. We overrely on the property tax to fund our schools. If you overrely on property taxes to fund schools, you're telling children the quality of their education is tied to the affluence of the community in which they live. That's obscene."

As Martire sees it, Illinois would be better off if it did a tax swap--traded higher income taxes for lower property taxes. But politicians have been reluctant to propose raising income

taxes under any circumstances--those who do tend to lose elections. Illinois' income tax wasn't even established until 1970, when Governor Richard Ogilvie,

a Republican, pushed it through the legislature. Voters bounced him out of office in 1972.

Since then politicians have occasionally stepped forward to point out the inadequacies of the system. In 1992 Democrats and Republicans even got together to draft a statewide referendum asking voters to fund at least 51 percent of educational costs through the income tax. But a few days before the election the sitting governor, Jim Edgar, a Republican, announced that he would vote against the measure on the grounds that the state couldn't afford to commit so much money to education. The referendum still got 58 percent of the vote, but it needed 60 percent to pass.

In 1994 Democratic gubernatorial candidate Dawn Clark Netsch revived the issue, calling for a swap. Edgar mocked her as a tax-and-spend liberal and scoffed at the notion that the state needed a great new source of money. He won reelection with almost 60 percent of the vote.

A few weeks after his victory Edgar bowed to fiscal reality and changed his tune. Citing a pending budget crisis, he appointed a blue-ribbon committee to study the idea of a tax swap. The committee produced a plan similar to Netsch's, and with Edgar's backing it made its way through the house of representatives. It died in the state senate, killed by another Republican, senate president James "Pate" Philip. One longtime observer says Philip acted more out of political spite than ideology: "Pate was mad at Edgar. He basically said, 'I'd told everyone you weren't going to do this, and you did it--so screw you!' Nothing's happened on this front since."

Quinn is trying to avoid Netsch's fate by limiting his tax hike to the state's wealthiest residents. Under his plan, only taxpayers making more than $250,000 would see their taxes increased, from 3 to 6 percent. He would use the extra revenue generated to offer property tax payers an annual rebate and to provide more money for public schools throughout the state. "It's time for voters to deal with the most pressing problem in state government," he says, "which is that we have a very high property tax and we don't have a dependable source of state funding for education."

According to Quinn, hiking the income tax on people making more than $250,000 would raise about $1.15 billion a year. "We'd split that in half--with $575 million going for education and $575 million going for property-tax relief," he says. "The average home owner would get about $208 a year, and each district would get about $277 extra for every student."

He says he doesn't expect strong resistance to raising taxes on people making more than $250,000. For one thing, there aren't that many of them--they account for under 2 percent of taxpayers. "There's 81,343 out of 5.7 million returns with incomes over $250,000 a year," he says. "That means 5.6 million returns will not be affected."

And even if the wealthy do complain, says Quinn, so what? They've been undertaxed for the last few years. "This would be on the group of people who, quite frankly, have gotten enormous tax relief over the last few years," he says. "We actually have the lightest taxes on millionaires of any midwestern state. But our state has very heavy taxes on ordinary people who work in our factories or plow our fields or teach our kids. Every day people pay a high burden, particularly through the property tax and the sales tax."

Quinn says he would guarantee that all of the new tax money would be reserved for property-tax rebates and education funding. It would be placed in a trust fund, and checks would be mailed directly to taxpayers and to school districts. "It would be similar to what they have in Alaska, where they set up a trust fund in their constitution for oil royalties," he says. "Once a year people in Alaska get a check from that fund directly mailed to them. We could do the same thing here for property tax payers."

He recognizes that his plan faces an uphill climb. At the moment he has almost no political support beyond that of state senator Maggie Crotty, a Democrat from the southwest suburbs. Blagojevich doesn't support the plan--or at least he says he doesn't. A lot of observers in Springfield figure Blagojevich is, as reporter Kevin McDermott recently wrote in the Saint Louis Post-Dispatch, "using his colorful lieutenant governor to carefully float the idea to the public." For the record, Blagojevich, sounding a lot like Edgar in the '94 campaign, says that he sees no need to raise income taxes and that he can erase the budget deficit and fund essential programs by getting rid of wasteful spending.

Given that he has no powerful political backers, Quinn says he'll build support by "going to the people," by which he means a voter referendum. But Illinois law requires that referenda on issues such as Quinn's proposed tax plan be approved by 60 percent of the state legislators in both houses before appearing on the ballot. So, says one of his aides, Quinn will have to "go over the heads of the people to the politicians so he can eventually go over the heads of the politicians."

Actually it's even more complicated. To show legislators how popular his plan would be, Quinn wants to have it placed on ballots in selected districts as an advisory referendum before placing it on a statewide ballot. Advisory referenda can be put on the ballot by local municipalities, so he'd be going over the heads of the politicians so that he can eventually go over the heads of the politicians. At any rate, the idea of a tax swap might first appear on the March 16 primary ballot. If voters approve it, the General Assembly could put a binding referendum on the November 2004 presidential election ballot.

Quinn intends to push hard for the advisory referendum. "We'll go wherever we can--town councils, city councils, and townships--to get this," he says. "I talked to [Chicago schools CEO] Arne Duncan. He was very interested--everyone's intrigued." If anyone could pull this off, it might be Quinn, who first made a name for himself back in 1980 with a successful statewide referendum that reduced the number of legislators in the state house. He has many allies on Chicago's City Council, including 14th Ward alderman Ed Burke, so Chicagoans may very well get to vote on the referendum next spring.

Other proposals might have a better chance of becoming law, because they don't involve referenda. One of James Houlihan's proposals would impose a 7 percent cap on increases in the assessed value of a house. "This would give residents the peace of mind that comes from knowing that they will be able to plan for their property-tax bills," says Maura Kownacki, a Houlihan spokeswoman. And if passed by the General Assembly, it would offer immediate relief to Cook County property owners facing a staggering rise in assessments. Houlihan's second proposal calls for an across-the-board hike in the statewide income tax, from 3 to 4 percent, with the additional revenues going to education and a reduction in property taxes.

Initial reaction to these two plans has been mixed. "I can see strengths and weaknesses in each," says Martire. "I don't think either goes far enough to correct the structural deficit. But I'm encouraged that they're showing political courage--it always helps to have political leaders go out in front on tough issues."

Art accompanying story in printed newspaper (not available in this archive): photo/Jon Randolph.

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