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SCI LIBRARY

Don't Exchange Income Tax
for Property Taxes

A. James Heins



[Reprinted from the Chicago Sun-Times, 1 April, 1993. The writer was at the time a Professor of Economics, University of Illinois at Urbana-Champaign]


I am aware that the Sun-Times has taken a firm position that Illinois would do well to shift away from reliance on the property tax to the income tax. This issue will be hot in the next few years as it derives from the question of who should fund education in Illinois and who should fund local government generally. But:

Is this really tie time in American history to increase taxes on effort and saving (the income tax) to reduce taxes on consumption (the property tax)? Surely America's notoriously low saving rate would argue against that.

While property tax inequity is often cited by the Sun-Times, how can it be "equitable" to increase taxes on people who work hard and invest in plants and equipment while reducing taxes on people who spend their money on mansions?

It turns out that even across income groups that property tax is widely regarded by economists to be roughly proportional. Thus, its burden is little different from Illinois' income tax.

The property tax is a local tax devoted to local purposes. Raising a statewide tax to reduce property taxes tends to break the important political nexus between the pain of taxation and the pleasure of spending.

I am disinclined to let mayors and council members take credit for public spending while shifting the onus of taxation to the governor and Legislature, though local politicians clearly love to do that.

Surely these reasons argue strongly against proposals to fund property tax relief at the local level with hikes in the state income tax. I urge your editorial board to reconsider its position.