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CENTER FOR TAX AND BUDGET ACCOUNTABILITY 70 E. Lake Street  Suite 1700  Chicago, Illinois 60601  direct: 312.332.1049  Email: rmartire@ctbaonline.org “ Hot Legislative Topics ” Illinois Association of School Board Officials Wednesday, May 14, 2008; 2:30 pm Pheasant Run Resort

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CENTER FOR TAX AND BUDGET ACCOUNTABILITY70 E. Lake Street  Suite 1700 Chicago, Illinois 60601 direct: 312.332.1049 Email: rmartire@ctbaonline.org

“Hot Legislative Topics”

Illinois Association of School Board Officials

Wednesday, May 14, 2008; 2:30 pm

Pheasant Run Resort

4051 E. Main Street

St. Charles, IL

Presented by:Ralph MartireExecutive Director


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What is the problem that causes all other problems?

???


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The state’s fiscal policy

is the culprit:

•The bad attitude of the powers that be is merely icing on the cake

TAX POLICY


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FIRST, A SNAPSHOT OF WHAT IS

Illinois State & Local Revenue

  • In 2005 (the most recent national comparison available), state and local revenue came from the following sources:

    PROPERTY TAX38%

    SALES TAX17%

    EXCISE TAX17%

    INDIVIDUAL INCOME TAX16.2%

    OTHER 7.4%

    CORPORATE INCOME TAX 4.4%

    SOURCE: Federal Tax Administrators Data

PROPERTY TAX RELIANCE


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  • This makes Illinois the 6th most reliant state on property tax revenue in the nation.

  • Two of the states more reliant on property taxes than Illinois – Texas and New Hampshire – do not have income tax.

  • Illinois is more reliant on property taxes than Florida, Nevada, Tennessee, Alaska, South Dakota, Washington and Wyoming – which also don’t have income taxes.

PROPERTY TAX RELIANCE


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WHY – EDUCATION

  • Illinois ranks 49th out of 50 states in the portion of education funding covered by state – versus local – revenue

  • Illinois is the most reliant state on property taxes to fund schools in the nation.

    (National Education Association Data)

PROPERTY TAX RELIANCE


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WHAT SHOULD BE:

FAIRPROGRESSIVE

RESPONSIVETO MODERN ECONOMY

STABLEDURING POOR

ECONOMIES

EFFICIENTDOESN’T DISTORT

PRIVATE MARKETS

ELEMENTS OF A SOUND AND FAIR FISCAL SYSTEM

BUT ISN’T


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WHICH HAS CONSEQUENCES FOR ANNUAL REVENUE GROWTH

$

$

$

$

NEW $$$ ?


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THERE ISN’T ANY

NOT SO MUCH


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FY 2008 DOESN’T LOOK ANY BETTER


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FY 2008 ESTIMATED BUDGET DEFICIT


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The Illinois Structural Deficit

(How Revenue Growth Will Not Keep Pace With The Cost of Current Services)

$49 Billion

Revenue

Expenditures

$44 Billion

$39 Billion

$34 Billion

$29 Billion

$24 Billion

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

STRUCTURAL DEFICIT

*Adjusts solely for historic rates of inflation and population growth, and assumes normal economic growth.


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  • Illinois has the 5th largest population (over 12 million) and economy (about $600 billion annually) in the nation, but

  • Overall, Illinois’ total state AND local tax burden, as a percentage of personal income ranks only 45th in the nation.

  • The second lowest tax burden in the Midwest to Missouri.

    • Illinois taxes 14.8% of income - Missouri 14.7%

ILLINOIS IS LOW TAX OVERALL


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  • But Illinois is high tax for low & middle income families

  • Illinois also ranks only 42nd in spending among the states

ILLINOIS IS LOW TAX OVERALL


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State & Local Tax Burden as a Percentage of Income

REGRESSIVE


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Income Growth in the United States 1979-1999

(Real 1999 Dollars)

*Source U.S. Census Data

100%

93.4%

Percent Change

80%

60%

50.20%

33.20%

40%

20%

5%

0%

-20%

-6%

Next

20%

Top

20%

Top

15%

Top

1%

Bottom 60%

INCOME INEQUALITY


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Shares of U.S. Household Income by Quintiles (1980 & 2005)

HOUSEHOLD INCOME

Shares of Household Income by Quintiles - 2006


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Ignoring all that—here’s the 2008 lottery proposal summary

  • Sell or lease 80 % of the Illinois Lottery for $10 billion

  • Use $7 billion to fund a capital program, and float another $3.8 billion in capital bonds

  • Use $3 billion to purchase an education funding annuity

2008 LOTTERY


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The Annuity Fund

  • Create an annuity fund with the $3 billion balance

  • Combined with the retained state interest, will generate $600 million in annual revenue stream to fund education over the next 25 years

  • Intended to replace current Lottery $$$

ILLINOIS LOTTERY


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What’s Missing?

  • Funding Equity/Property Tax Relief

  • Higher Education

  • Sustainability

  • Growth

  • Cliff

ILLINOIS LOTTERY


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  • And that’s a best case scenario

  • Just 2 years ago, full sale of lottery was to generate $10 billion

  • Starting point is $22 million less than 2007 lottery proceeds to CSF—over $622 million

  • Over the last 5 years, lottery revenue has grown by an average of $27 million per year

  • That’s $108 million in lost revenue over 4 years—& what happens when annuity goes?

ILLINOIS LOTTERY


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SB750 is designed to:

  • Be sound tax policy for the modern, capitalist economy

  • Make tax burden fairer, by making it more progressive―the bottom 60% of income earners won’t pay more in taxes after SB750 passes

  • Improve school funding by

    • Raising the foundation level

    • Enhancing special education funding

    • Targeting $300M in additional funds to struggling schools

    • Investing $300M more per year in higher education

  • Eliminate the Unfunded Pension Liability

  • Provide progressive property tax relief statewide, that effectively helps struggling communities while reducing fixed costs for business

  • Keep Illinois’ status as a low tax state

SB750


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THE RAMP


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After SB750:

  • Flat payments of $3.4 billion per year amortize the full unfunded liability

  • The ramp goes away, out year payments become easier

  • Normal cost handled by current revenue

REFORM


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INCOME TAX INCREASE

3%5%

3%2%=5%

2/3=67%

*Note, corporate rate goes up from 4.8% to 8%, but―overall corporate tax burden goes down!

SB750


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SALES TAX BASE


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  • Brings stability by taxing solely consumer services, like bowling, lawn care and health clubs

  • SB750- DOES NOT TAX healthcare, housing or business services

SB750


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SB 2288


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SB 2288


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Compare that to a Gross Receipts Tax

Lumber Company

Finishing Company

Furniture Manufacturer

Wholesaler

Retailer

Tax

Tax

Tax

Tax

TAX

 GRT's are regressive & inefficient

Consumer


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HIGHER EDINVESTMENTS


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COMMUNITY COLLEGES


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Current Basis for Foundation Level

  • The Illinois state “Foundation Level” is the minimum per child guaranteed expenditure for K-12

  • Does NOT include: poverty, special ed, transportation, etc.

  • Currently $5,734 – but not tied to any measurable standard

K-12 FUNDING


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Education Funding Advisory Board (“EFAB”)

  • Change basis to a measurable outcome standard, predicated on costs and test results

  • Foundation Level should be at least $7,191 (after adjusting for inflation)

  • Total cost: $1.8 billion

EFAB


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SPECIAL EDUCATION FUNDING(Not so Special)

  • $8,000 was granted in 1985 per special ed instructor

  • Increased in FY 2008 to $9,000 per special ed instructor

  • Adjusting for inflation, in 2008 a school district would need either $15,844 (CPI) or $19,767 (ECI) just to stay even

SPECIAL ED


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For Tax Fairness FAMILY TAX CREDIT

SUMMARY:

$900 million refundable credit targeted to middle, low and no income families

Designed to eliminate impact of tax enhancements under SB750 on middle/low income taxpayers

Net effect – through refundability feature, the credit effectively relieves both income and sales tax changes, so the bottom 60% of income earners do not pay more in taxes under SB750

EXAMPLE:

Tax Credit of $500

Income Tax Liability $200

Balance $300

Taxpayer receives a $300 check for the balance, offsetting sales, excise and property taxes paid.

FAIRNESS


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PROPERTY TAX RELIEF

AMOUNT:$2.9 billion, statewide

METHOD:Abatement of 25% of the property taxes that fund education Minimum guaranty of 20%, with extra relief to low income areas

TRANSPARENCY: Amount of abatement shown on individual

property tax bills

DescriptionRiver ForestChicago Heights

Total Bill $10,000 $ 6,000

School Levy $ 7,000 $ 4,000

Portion of School Levy ($1,400) ($1,200)

already paid by the state20% minimum30%, after bonus relief

Net Paid by Property

Tax Payor $8,600 $4,800

PROPERTY TAX RELIEF


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CONTINUING APPROPRIATION

A+B+C



FY BR$1.8 billion ECIFoundation LevelCPI

$2.9 billion Property Tax

Special Education Mandate, Bonus Investment Pool

CONTINUING APPROP.


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BENEFITS


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SB750


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For More Information:

  • Center for Tax and Budget Accountability

    www.ctbaonline.org

    Ralph M. MartireExecutive Director(312) 332-1049rmartire@ctbaonline.org

    Chrissy A. ManciniDirector of Budget and Policy Analysis(312) 332-1481cmancini@ctbaonline.org

Further Information


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