The economy is booming, and the states are flush with cash. Keep this in mind if your state representitives or governor are proposing tax hikes, like they are in Illinois. Or, when the Democrats inevitably start whining about how bad the economy is again.
State government revenues are soaring again, ending a period of budget shortfalls and prompting proposals for tax cuts and new spending initiatives for the first time since 2000.
Tax collections rose to a record $600 billion in the states last year, up 7.2% over 2003, the biggest increase since 2000. The money is rolling in even faster this year as many states report double-digit revenue increases through April.
The most immediate effects of improving state finances across the USA are college tuition hikes that were smaller than expected, pay raises for government workers and less borrowing. The big decisions – tax cuts vs. major new spending – are starting to brew in most legislatures but won’t be decided until late this year or early 2006.
Many governors and legislatures are reacting cautiously to the rising revenue, approving mostly small new spending proposals and tax cuts. Arizona funded a new medical school. Utah boosted its tourism promotion budget. Idaho plans to give a 1% bonus to teachers and other public employees.
The reversal of fortune ends what the National Governors Association had called the states’ worst economic situation in 60 years.
“We’ve come a long way, baby,” says Massachusetts Gov. Mitt Romney, a Republican. He faced a $3 billion budget shortfall during his first year in office in 2003. Now, his state is on track for its second straight year of surpluses. He wants to use about half the surplus to cut the state income tax to 5% from 5.3%.
Of course, in Illinois we’re still discussing legislation which would massively increase taxes for the average Illinoisan. Some Illinois residents would see a 40% increase in their combined state income tax and property bill.
llinois homeowners would see a 20 percent increase on average in their tax bills if the state overhauls how it funds public schools, according to a new computer analysis of tax data.
The Chicago Tribune reviewed information from 5.2 million Illinois tax returns filed in 2004 to determine how a proposed school funding reform would affect taxpayers.
The Tribune’s analysis found that the increase would be seen statewide — from wealthy city neighborhoods to middle-class downstate communities.
Lawmakers are considering a proposal that would raise income taxes to allow for lower property taxes and more school money. Property tax breaks built into the reform plan would not be enough to offset the income tax hike, the Tribune analysis found.
Supporters of the reform say the current school funding system, which depends heavily on local property taxes, shortchanges poor minority students and leads to disparities. The reforms, which may see a vote in the Senate this week, would funnel $1.7 billion into public schools and increase per-student aid from $4,964 to $6,100.
The Tribune analysis found that homeowners’ combined property and state income tax bills would go up under the plan  exactly how much depends on school district and income level.
The Tribune found the lowest increase was less than 7 percent in one Waukegan ZIP code, and the highest were more than 40 percent in some areas  including parts of Chicago’s Loop and for some ZIP codes downstate.
Suburban Chicago counties fared better than downstate counties, which as a whole would see an average 21.5 percent increase in taxes. In contrast, suburban Lake County’s average increase was 16.9 percent and suburban Will County’s increase was 14.2 percent.
Downstate school districts typically receive more in state aid than elsewhere, leading to relatively lower property tax bills. Those lower bills would hurt the downstate taxpayers under the proposed reform.
The lower the property taxes in a district the less property tax relief taxpayers would receive.
I’m keeping my fingers crossed that this horrible bill goes down in flames, or that Blagojevich will keep at least one of his promises, and veto any proposed tax hike.
