Friday, September 5, 2008
'Tax-spending' costs Illinois schools $1.1 billion per year
By Jim Broadway, Publisher, State School News Service
Illinois Comptroller Dan Hynes released his FY 2007 "Tax Expenditure" report last week, showing that public education lost more than $1.1 billion in dollars that are built into the state's revenue structure but are, for various reasons, not paid.
In fact, Hynes reported a total of $7,185,000,000 in tax dollars that would have come to the state if not for tax breaks, some might be called "loopholes" in the tax structure, targeting benefits for some at the expense of the general public.
That $7.185 billion - up by 7% from FY 2006 - would have built a lot of schools, roads and bridges. It would have funded a lot of property tax relief, a lot of teachers' salaries and school supplies and tutoring services and after-school programs.
With more than $1.1 billion lost directly from funds that otherwise would have gone to public schools, many education advocates may be tempted to say: "Let's close the loopholes!" But before we do that, let's take a look at those loopholes.
The sales tax exempion on food, drugs and medical appliances incurs for by far the largest chunk of "lost" revenue - $1.46 billion in FY 2007. Everyone who eats or has to take medicines gets benefits from that. It's hardly a "special interest" tax break.
The next biggest "loophole" - $1 billion - is the sales tax exemption for non-profits such as churches and groups providing social services to children, the elderly, to veterans, and cultural enrichment in the form of art, music and dance performances. Again, this tax break can be seen to have widely distributed benefits.
Illinois is one of a few states that do not tax retirment income. This saved senior citizens $983 million. The standard deduction of all income taxpayers and dependents totals another $713 million. The income tax credit for property tax payments adds another $478 million to "tax spending" in Illinois.
By now, we've identified almost $4.7 billion in tax "loopholes" (about 65% of the total) that either apply to most taxpayers or have sympathetic beneficiaries - the elderly, the infirm, non-profits providing important community services.
That leaves $2.5 billion in tax breaks. Who gets them?
Mostly, they are given to business interests. "Net operating losses" are deducted from the corporate income tax. Farmers get a sales tax break on chemicals they have to use and on the fuel they must buy to operate their equipment.
Retailers get a discount for collecting the sales tax. There are tax breaks for mining, for producing ethanol fuels. Such exemptions usually relate to job-creation or to the viability of industries that contribute to the economy of Illinois.
Why do you need to know all this? After all, Hynes issues this report every year and you rarely hear about it from the media. But $7.185 billion is not trivial. It is spending, but it is not included in the annual state budget.
Also, someday soon proposals will be floated to raise the income tax or expand the sales tax base to include untaxed services. Why? For school funding reform, to cut property taxes, to restore funding for child protection, public safety, natural resources and other state services decimated by the persistent state budget crisis.
Objections will be raised. Some will say "tax loopholes" should be closed instead, that all taxpayers should be treated "equally," that all should support services vital to the citizens of Illinois - without exception. When that happens, for you to take an informed position, you should review Hynes' report and decide:
Which of categories of "tax spending" would you want to see discontinued?
