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How would you describe public policy that made it more difficult for a worker to provide for his or her family, or for that worker’s children to become educated and gain the skills needed to improve their lot in life? What if that same policy also made elder abuse and domestic violence more likely to occur, or denied needed supports to individuals with physical disabilities or mental-health concerns?

I’d bet you’d suggest many ways to characterize such dismal public policy, some too colorful for a family newspaper. But the accurate way to describe it is quite simple: Illinois state tax policy.

Why does the state’s tax policy engender these negative outcomes? Again, the answer is simple. Illinois’ tax policy is so poorly designed that even when services are not added or increased, and even when the economy is pandemic free and expanding normally, the tax revenue that feeds the state’s general fund does not increase by an amount that’s sufficient to continue providing the same level of public services from one fiscal year into the next. This is known as a “structural deficit.”

Illinois tax policy creates an ongoing structural deficit because it fails to satisfy any of the three fundamental principles of sound taxation — that taxes be imposed in a manner that is fair to taxpayers, responsive to the economy and stable during poor economic cycles.

Consider fairness first. From a textbook standpoint, tax policy is fair when it imposes tax burden among individuals with different incomes in a manner that comports with their respective abilities to pay. A quick look at the data shows that, since 1979, the bottom 90 percent of earners in Illinois have seen their annual incomes decline in real, inflation-adjusted terms, meaning their ability to pay taxes is declining.

Meanwhile the top 10 percent of earners in Illinois have seen significant real growth in income over this period, meaning their ability to pay taxes without having that payment impact their lifestyle has grown substantially. So to be fair, tax burden in Illinois has to be progressive — that is, it should impose a greater tax burden on affluent individuals than on low- or middle-income folks, when measured as a percentage of income.

But Illinois ignores this economic realty and imposes a greater tax burden on low- and middle-income folks than on affluent individuals. Indeed, Illinois consistently has one of the most regressive tax structures of any state. And because the bottom 90 percent in earnings have seen their annual incomes decline in real terms over the last four decades, Illinois’ regressive tax policy effectively makes it more difficult for them to provide for their families.

To be responsive, a tax system has to focus taxation where economic activity is significant and increasing over time. As with creating tax fairness, a progressive tax structure is needed to ensure a tax system is responsive, given the growth in income inequality that’s occurred in Illinois since 1979. Unfortunately, Illinois misses the mark here.

Making matters worse, the state’s sales tax also fails to respond to the modern economy. Why? Well, it applies primarily to the sale of goods, not services. That fails to respond to the economy, because more than 73 percent of all economic activity in Illinois comprises the sale of services, while only around 17 percent comprises the sale of goods. In fact, Illinois’ sales tax covers less of the modern economy than any of the 45 states that impose a sales tax.

Which also happens to be why the state’s tax system isn’t stable. See, during recessions, sales-tax revenue typically does not decline as much as other tax revenues do, because consumer spending, which accounts for roughly two-thirds of the economy, stays relatively constant. But since consumers spend the majority of their income on services, which Illinois mostly doesn’t tax, sales-tax revenue in Illinois isn’t stable during downturns.

When any government has a long-term structural deficit, it’s forced to underfund public services, which in fact Illinois has done. And that’s what leads to the other inequities referenced previously. Why? Because over 95 percent of all general-fund service spending goes to education, health care, human services and public safety — so those are the programs that Illinois is compelled to cut because of the revenue shortfalls created by the structural deficit.

Hence Illinois’ flawed tax policy effectively denies low- and middle-income kids the opportunity to get ahead, because the structural deficit both caused Illinois to underfund education for decades — and concomitantly push the primary burden for school funding down to local property taxes. This has meant low- and middle-income kids generally receive a lower-resourced, and hence lower-quality, education than their more affluent “counterparts” — or should I say, “competitors,” given the strong correlations between educational attainment and economic viability in the modern world.

Similarly, the structural deficit has forced Illinois to make significant cuts in real spending on social services over the last two decades, which has damaged the safety net relied on by vulnerable senior citizens, those with disabilities or mental-health concerns, and victims of domestic violence.

Obviously, no one would support implementing any public policy that generated all the negative consequences that flow from Illinois’ current tax policy. So why not support reforming that tax policy to set things right?

Ralph Martire is executive director of the Center for Tax and Budget Accountability, a bipartisan fiscal-policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University in Chicago. He can be reached at rmartire@ctbaonline.org.

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