Chicagoland Wed Jul 28 2010

Tax to the Future

By Ben Schulman

The Chicago Metropolitan Agency for Planning recently came out with an exhaustive blueprint for moving the region forward to the year 2040. The 416-pg manual for Chicagoland's tomorrow entitled GO TO 2040: Comprehensive Regional Plan nobly proffers an outline for greater Chicago to prosper in the years to come, and presents a view of 2040 as developed in the best of all possible worlds. Riding the waves of last year's 100th anniversary of Daniel Burnham's Plan of Chicago, CMAP
has unveiled a multi-pronged approach to dealing with the issues the region must address to build the most beneficial environment -- in all respects -- by that time. Focusing broadly on Livable Communities, Regional Mobility, Human Capital and Efficient Governance, the report breaks down each of those headings and gives them their fair due with hefty analysis.

From now till August 6, members of the public are encouraged to download the plan and comment on the ideas CMAP has offered. After the public review, CMAP will make changes as needed before presenting the plan as final to the overseeing CMAP Board. Then, acting as the designated Metropolitan Planning Organization for Chicagoland, CMAP will in turn use the Go To 2040 platform to engage the State of Illinois and the US Government for funds, approvals, and the green light on implementing projects according to the plan.

While the entirety of the report proves too exhaustive to outline in detail here, there is one sub-section of the Efficient Governance chapter that deserves a closer peek. Reforming state and local tax policies is an absolute must if Chicago intends to grow, and seeing how Springfield seems to operate in a state of permanent stasis, it will take the grit, gumption and initiative of local civic leaders to push the debate forward on this issue. CMAP encourages an almost wholesale restructuring of our current taxing system, including broadening the tax base by creating a tax on the service sector (currently exempt although it makes up nearly 70 percent of expenditures), instituting a graduated state income tax based on income levels, and in general, standardizing the tax policy across municipalities so as to avoid the large and varied discrepancies that render some communities unable to provide basic services.

Most tellingly, as CMAP states,

More than $4 billion annual in state tax revenue is disbursed to local governments in northeastern Illinois, based on various criteria. More than one quarter of this amount comprises sales tax revenue shared between the state and municipalities, which receive 16 percent of the sales tax collections based on local point of sale. This disbursement structure creates an incentive for many local governments to emphasize retail land use -- such as the attraction of auto dealerships and big box stores -- perhaps at the expense of other uses more beneficial to the regional economy, such as offices or industrial uses.

With over 1200 tax-collecting governing bodies in Northeastern Illinois alone, this creates a false and misguided sense of competition between localities to land big boxes and other retail vendors, who provide incredibly fluid and insecure rates of return. One downturn in spending and the localities are stuck looking elsewhere to make up the difference.

Ideally, competition acts as an incentive to draw businesses in or inversely, create efficient forms of governance to make places more attractive to invest. This doesn't seem to be happening in Illinois however. Richard Longworth, in his recent book Caught in the Middle: America's Heartland in the Age of Globalism, speaks about this misguided sense of competition among states and municipalities across the Midwest, noting that such hyper-localized competition actually works to discourage communities from successfully developing. While Chicagoland on the whole has remained much more powerful and successful than many of the places Longworth focuses on, his argument is still applicable locally. As long as communities compete against one another for the lowest common denominating source of funds, all we are doing is see-sawing the liabilities and burdens of paying from one hand to the other.

Basically, the entire tax structure is set up in a way that encourages artificial arguments, and also ensures that all entities get very little bang for their buck. Sick and tired of paying that 9.75 percent sales tax in Cook County? Allow the artificially low state income tax to rise, allow taxes to be levied on the services that make up the majority of our economy, and then lobby for the sales tax to be brought down in line to something consistent. Nobody should argue for more taxes, but everybody should be arguing for sensible taxing. Such an over-reliance on property taxes and a minimum placed on income taxes in effect forces the sales tax to rise, and in the process alienates businesses and customers alike, deepening the hole we dig for ourselves.

The below PDF map from the Go to 2040 book shows sales tax revenues relative to property tax revenues. It is time to shade these colors in a more realistic fashion. Hopefully, with the groundwork CMAP has set for the region, Chicagoland will be poised to do so for the future.

CMAP, Sales Tax relative to Property Tax.pdf