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Outdated tax system hurts Illinois economy

A new national study offers support for local reformers’ arguments that Illinois’ “antiquated” tax system could be a drag on the state’s economy.

The failure of state tax systems to keep up with fundamental shifts in the economy — including the shift away from manufacturing —   is fueling revenue and public investment shortfalls that undermine economic growth, according to an analysis released in early January by the Pew Center on the States, a program of the Pew Charitable Trusts.

“Antiquated tax structures result in lost revenue, an environment that is inefficient and inhospitable to business, and inequitable taxes on some segments of the economy at the expense of others,” said director Susan Urahn in a statement on the report from the Pew Center.

Mary Jo Waits of the Pew Center will be among national experts joining the Center for Tax and Budget Accountability‘s annual fiscal symposium Tuesday, as the CTBA shifts its focus beyond Illinois to consider what other states are doing to address slowing revenues and rising demands for services, said Ralph Martire.  Illinois comptroller Dan Hynes and treasurer Alexi Giannoulias will also participate.

Martire and CTBA have longed criticized the Illinois tax system for instability and unfairness, with “structural mismatches” guaranteeing growing deficits because state revenue sources don’t capture economic growth.

This includes a sales tax focused heavily on the sale of goods, while the growing preponderance of the economy now involves sale of services.  And it means a regressive reliance on property taxes (and a flat-rate income tax) so the tax burden falls on the lower half of wage-earners — whose income is declining after inflation — rather than the top 20 percent, where income growth is heavily concentrated.

Among the results of revenue shortfalls is the failure to fund capital improvements and education.

“If you want to be competitive in a global market, you have to invest in infrastructure and you an an educated workforce, and Illinois is falling short on both counts,” said Martire.

CTBA’s fiscal symposium takes place Tuesday, January 29 at 9 a.m. (registration and breakfast at 8:15) at the Union League Club, 65 W. Jackson.  Registration is due by Monday; call 312-332-1041 for registration information.

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Category: state budget, taxes

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