Our CEO John Tillman is quoted in the following article by Eric Zorn. He explains why Zorn calling for a Chicago income tax is a bad idea.
“ I reject … the idea of a city income tax. I think that’s not the right way to go” — Chicago Mayor Rahm Emanuel, responding Wednesday to questions about how the city will shore up its sagging pension funds
I reject the idea, too, just as I reject the idea of state and federal income taxes, property and sales taxes. I want government somehow to pay for itself, or, if that doesn’t pan out, for other people to pay for it, not me. And I want nine mansions.
Back in the real world, though, I know that we have to pick our poisons when it comes to taxes. And I think a city income tax might, in fact, be the right way to go.
The alternative now on the table is a $250 million city property tax hike, phasing in over five years, to address a shortfall in just two of City Hall’s four pension funds.
Other revenue-boosting alternatives include increases in so-called sin taxes, an expansion of sales taxes to cover services, casino gambling, financial transaction taxes, fee hikes, employee head taxes and more punitive fines for minor transgressions.
They all have their downsides. They all risk unintended consequences. They all stick in my craw, and probably your craw, too.
But if the alternative is a significant decrease in city services leading to a deteriorating quality of civil life, a city income tax is among the least objectionable options for balancing the books.
Here are four reasons why:
1. More than any other taxes, income taxes are most closely related to a citizen’s ability to pay.
Yes, wealthy people tend to own more valuable property and pay higher property tax bills than middle- and lower-income people, but the many political and social crosscurrents that affect property taxes and individual taxpayers often end up squeezing those who are already nearly dry.
Lose your job? End up on disability? Find your neighborhood rapidly gentrifying around you? The property tax collectors don’t care.
2. Income taxes can easily be tweaked to go easiest on low wage earners.
Either through graduated rates or exemption thresholds, income taxes can be designed to take a proportionally bigger bite from those on the high end of the income scale.
3. Income taxes are more transparent than property taxes.
The various bureaucratic bodies that collaborate to set your property tax bill and the deliberately byzantine formulas they use leave most of us baffled and glad that our mortgage lenders pay the county out of escrow accounts so we don’t have to think about it too much.
That likely explains this statistic, passed along by Ralph Martire, executive director of the Center for Tax and Budget Accountability in Chicago: “The rate of growth in property taxes in Illinois over the past 25 years has outpaced the rate of growth in median income by almost 20 times.”
I hadn’t noticed. You?
But we’d all notice that kind of creep in a city income tax, and we’d all know to hold the City Council — read: the mayor — accountable for it.
4. A tax on income earned in the city nicks suburban commuters for the services they use.
Chicago police and fire departments protect those who work in the city but live elsewhere eight hours a day and more. City crews keep the streets relatively smooth and relatively clean around their places of employment. And the city, for all its flaws, remains the social and economic hub of the region.
It’s not exactly a new idea. Philadelphia began imposing a city income tax in 1939, according to research published by the Tax Foundation in Washington, D.C., and it has spread to scores of municipalities around the country.
Critics, such as Laurence Msall of the Civic Federation and John Tillman of the Illinois Policy Institute, contend that a city income tax would drive businesses and residents out of Chicago, and that there are better alternatives to getting Chicago out of its pension pickle.
“There’s certainly anecdotal evidence that city income taxes hurt cities,” said Matt Gardner, executive director of the Institute on Taxation and Economic Policy in Washington. “But the research evidence just isn’t there to prove that changes in local tax policy have meaningful effects on employment or residential decisions.”
In short, this is an idea to be considered, not rejected.
Find the article here.