The State’s Tax Reliance on Goods
The State of Illinois primarily taxes goods as opposed to services. Currently, the state taxes 17 services with 12 coming from public utilities. This narrow base is poor to adapting to changing in the economic climate because it becomes overly dependent on taxes from only a few services belonging to a selected industry. For example, approximately 25% of of revenue gained from the sales tax comes from the auto industry, such as the sale of fuel and vehicles. In effect, if economic circumstances cause a decline in revenue in the auto industry, this may inadvertently affect the state’s revenue projections with less coming in than if revenue streams were more evenly dispersed.
Neighboring states have adapted a broader tax based system. In comparison, Kentucky taxes 23 services; Indiana with 25; Missouri with 28; Missouri with 28; and Iowa with a staggering 98. Moreover, the Commission on Government Forecasting and Accountability has indicated that the national average is 56, making Illinois with the lowest tax based in the nation.
According to The Illinois State Journal-Register, If Illinois taxed the same amount as Iowa, it would have brought in an additional $1.2 billion to $2.9 billion per year when fully implemented by fiscal year 2020, if taxed at a rate of 5%. Taxing at the same rate as Wisconsin would bring in $588 million to $953 million per year.
Why Doesn’t Illinois Reform its Tax Structure?
Reforming Illinois’ tax structure would require a major political lift in order to pass and implement. Nobody wants to have their taxes raised or suddenly be taxed when they previously were not. In effect, residents would most likely view the reform as toxic and just another bandaid that would barely heal the state’s fiscal wounds. Most importantly, residents would also most likely view the reform as something that would increase their cost of living or doing business in the state; making it very hard to sell.
For related, see Taxation in Illinois