Sunday, October 21, 2007

State and local appetitite for tax increases due to an outdated taxes

Why is it that the State, the transit agencies, the City of Chicago and the County of Cook are all looking for tax increases?

According to the Tribune story Behind the Great Tax Push, it's because they can get away with it. Typical anti-government line: they must not represent the people (who only want lower taxes) because they just got elected, so therefore, 'they' will try to shove an unwarranted tax increase down 'our' throats because they can't manage a government.

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. The Federation of Tax Administrators in DC put out that data recently, and you can check it out yourself here.

You'd think the Trib would have included some of our local experts, like the Center for Tax and Budget Accountability (that put out a great report on Cook County's structural deficit, due partially to a sales tax that only covers goods), but I guess there wasn't room with the anti-government quotes like:

"There seems to be a general attitude to tax everything that you can," said Msall of the Civic Federation, a non-partisan government watchdog. "That's what these government officials think their role is, to oversee the expansion of government rather than the management of government."
Well, gee! I guess our 1950s tax system doesn't have anything to do with revenues shrinking every year. It's all about those Big Government Democrats instead who don't believe in management!

I hope the Trib and the rest of the media tell a more accurate story about our governments and our 1950s-era tax systems in the coming weeks to explain why more of our governments are not balancing their budgets.

And more importantly, I hope we can modernize our tax system with a sales tax on services as well as goods and a progressive income tax instead of a flat tax.


47th Ward said...

I understand why John Fritchey enables comments on his site and not Illinoize. I never understood John Ruberry doing the same, but I'm not a blogger, so whatever.

You've made a great argument here, one of the best I've read anywhere, as to why rethinking the basics of self-government is so important. The corporate world went through the re-inventing stage 30 years ago, and government doesn't even understand the concept yet.

Kudos to you for calling our government revenue models what they are: outdated. Great post.

As an aside, I think you should have enabled comments on Illinoize because lots of people would have told you why you're wrong. And then the rest of us would feel better about agreeing with you, and isn't that the point?

JB Powers said...

Hmm..why is it that we need more taxes again? Doesn't spending play into this a bit?

How can anyone in this state justify more or new taxes with the TIF program being off-budget, and in a shambles? With healthcare costs rising at 5x the rate of inflation, while the State makes it nearly impossible for healthcare providers to provide lower cost services?


Dan Johnson-Weinberger said...

Thanks 47th Ward. I like having a bit more control over the comments posted about me, and I'm notified by email whenever anyone posts a comment on my own blog.

JB, it's not always about taxes, just like it's not always about spending. But our taxes need to be modernized. And who do you think pays that 5x faster than inflation cost of health care? Government! 80% of our cost is personnel!

Carl Nyberg said...

In our 1950s economy income was taxed at a much higher level and corporate income taxes accounted for a large chunk (40%? more?) of the total income tax receipts.

So, I suspect our current tax code would have been crappy and unfair in any era.

Republicans consistently fight to shift the tax burden from the federal income tax (the most progressive of taxes) to every other tax (varying degrees of regressiveness).

The question that needs to be asked: why don't the Democrats fight to shift the tax burden away from the middle class and toward the wealthy?

Nicole said...

I think it is absolutely necessary to tax services. Since the economy in Illinois has shifted in the last fifty years from production oriented to service oriented, why wouldn't we include that type of tax. If we don't so many more social service agencies that provide help to those that cannot help themselves will shut down. It will increase the number of working poor. The middle class squeeze is becoming more and more obvious, and it is time for people to come to the conclusion that taxes, as hated as they are, are absolutely needed. The way of life in Illinois has changed, and so the way we tax should too. This is the most thought provoking article I have read on the subject. Kudos Dan!

Steve Bartin said...

This is a government spending issue.Specifically,a pension issue.The taxpayers can't afford for government workers to retire at 50 years old(which many do).The problem is government workers vote for politicians that give them this generous benefit.You either pay taxes or you consume them.Government workers consume taxes.Maybe,Dan or someone else can comment on why government workers should be able to retire earlier than the private sector.

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