COVID-19 damage control requires fair tax

The progress already made in statewide education is jeopardized by lost revenue in economic collapse

Illinois was making progress improving public education across the state, but what will schools and students like the Gillespie High School Miners do now with property taxes sure to be diminished by the COVID-19 slowdown? (One Illinois/Ted Cox)

By Ameya Pawar and Ted Cox

Illinois was already taking giant steps to put its fiscal house in order and boost public education across the state — when the coronavirus pandemic hit.

The lost tax revenue from the economic collapse brought on by mitigation efforts to halt the spread of COVID-19 threatens to undermine both the progress already made and the state’s ambitious plans for the future.

The fair tax proposed by Gov. Pritzker was already part of those ambitious plans, enabling the state to fully follow through on evidence-based school budgeting, designed to level the playing field for public education across Illinois after schools were defunded for years, and to bolster its public universities, after they were hit hard by the two-year budget impasse under Gov. Rauner.

As state Sen. Andy Manar of Bunker Hill, a leading proponent of both that evidence-based funding and the fair tax, argued last year with the passage of the tax rates by the General Assembly, sending them on to a public referendum to formally alter the state constitution this fall, “property-tax relief has to be a priority for the state,” in that it “gets at the root of what largely drives high property taxes across the state — funding for local school districts. In addition, it forces the state to own up to its responsibility of fully funding schools.”

He added that “as long as the state lives up to its responsibilities to adequately fund school districts, including lunch programs and student busing costs, there would be little need for districts to go to local property owners seeking tax hikes.”

“It’s time to turn off the spigot of property taxes and make state funding the predominant source of support for schools,” Manar said. “This is the next step toward bringing true equity to the funding of schools while acknowledging the property-tax burden has to be reduced over time.”

But now, with the coronavirus economic slowdown, local governments face that spigot being turned off through no fault of their own, with diminished tax revenue, including what could be defaults from local property owners.

This threatens to scuttle the progress already made on evidence-based budgeting, but it also threatens the long-term goals. Leveling the playing field for public education across the state was expected to enable small communities to better compete for residents — providing all of the benefits of small-town life, with none of the stereotypical drawbacks in the form of backward schooling — which was eventually supposed to dovetail with improved rural broadband making telecommuting possible anywhere in the state.

With the pandemic, however, and the increased calls to work from home if at all possible, remote employment has already expanded, and the state has to follow through on improved rural broadband — in part through the $45 billion Rebuild Illinois capital plan — to enable residents to fully take advantage.

There is an opportunity to grow parts of southern and central Illinois not in spite of the pandemic, but because of the open door it presents in areas like education and rural broadband, going hand in hand in that regard. It’s an opportunity to align our goals for economic development with the need to lift up all Illinoisans statewide.

Last year, a study put out by the Governor’s Office showed that rural counties across the state stood to benefit most from a graduated income tax. Another study later in the year, from the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois at Urbana-Champaign, showed that adequately funding public schools on the state level would allow local governments to provide property-tax relief on the local level.

Meanwhile, bolstering the state’s public universities also boosts the college towns that make up the economic engines for many areas of the state. As Illinois continues to bleed population, the two sets of twin cities that play host to the two top state universities, the University of Illinois at Urbana-Champaign and Illinois State University in Bloomington-Normal, have all seen their population rise over the course of this decade.

Now property-tax “relief” is no longer pie in the sky, but something the state and local school districts are going to have to account for in any case with the expected decline in property-tax revenue statewide.

As Ralph Martire, executive director of the Center for Tax and Budget Accountability, was pointing out at about the same time as that later ILEPI-UIUC study, a progressive income tax is designed to draw on money where it’s growing in an economy and cut some slack where it’s diminishing. That’s exactly the prescription for how to handle diminished revenues in an economic slowdown.

As numerous studies have already shown, billionaires have already succeeded in regaining much of the wealth they lost in the early coronavirus stock-market crash in March and April, while unemployment figures continue to rise. The investor and asset class, those folks are doing well. Why shouldn’t the top 3 percent of Illinois taxpayers, making more than $250,000 a year, pay a slightly higher tax rate, up to just under 8 percent for top earners making more than $1 million a year, while the vast majority of Illinoisans, 97 percent, pay the same or a slightly lower tax rate than the 4.95 currently imposed as a regressive flat tax?

That is going to be even more critical going forward, as the economic recovery from the pandemic is likely to be uneven, with some industries springing back quickly, while others — such as the restaurant, hospitality, and entertainment industries — lag behind thanks to social-distancing restrictions that might be eased, but must be in some part retained to deter a second wave.

The fair tax must no longer be seen by its grudging proponents as an extra tool to augment state revenue, but as a critical device to minimize the damage that’s already been done by COVID-19.

“The fair tax must no longer be seen by its grudging proponents as an extra tool to augment state revenue, but as a critical device to minimize the damage that’s already been done by COVID-19.”

If we don’t tax fairly the people who are doing incredibly well — even in the COVID economy — then the state will simply not have the money to pay for the things we need, public education and rural small towns foremost among them. So people who make more than $250,000 next year — as the economy, we all hope, continues to recover from the pandemic — should all pay a little more because they can afford it where so many other Illinoisans can’t.

An emphasis on public education — including higher education — to give Illinoisans the skills they need, combined with state-of-the-art rural broadband to give them the tools required to take advantage, could alter the economy across the state and, yes, lift all boats.

We simply have to shift the money from where it’s abundant and pooling in the COVID economy to where it needs to go to allow all to join in the recovery. There’s no limit to where Illinois can go from there.