Taxing services could solve woes

Posted1/9/2013 4:59 AM

Taxing services could solve woes

I am a retired teacher with a vested interest in protecting the integrity of all publicly funded pensions. I am also extremely frustrated that there has been so little consideration of the real underlying problems our state faces: an unfair state income tax structure, an unwillingness to accept reality with regard to a sales tax on services, and an unrealistic repayment schedule for our pension debt.

Illinois is one of only seven states in the nation which employs a flat tax and, until the recently enacted temporary increase, at 3 percent for individuals was dead last in the rate imposed. Even now, at 5 percent (until 2015), we are not the most highly taxed of this group. A flat tax is inherently unfair: 83 percent of states with an income tax and even the federal government have chosen a graduated income tax as the most fair way to tax.

As quoted by Joe Cahill in Crain's this past July, "former Federal Reserve Chairman Paul Volcker blamed Illinois' staggering deficits in part on a 'narrow tax base.' As the service sector grew during the past several decades, most states extended sales taxes to a range of consumer services, Illinois taxes just 17 services, fewer than all but 3 other states, well below the national average of 56. Neighboring Iowa, by contrast, taxes 94 services. It is estimated that taxing consumer services could provide an additional $4 billion annually, enough to nearly cover our current $5 billion-plus backlog of unpaid bills."

And, finally, let's consider the repayment schedule. This is a self-imposed, overly ambitious, unrealistic schedule. Once we address the revenue side of the equation, it would make sense to refinance our debt into a manageable and reasonable program of debt repayment.

Pension crisis solved.

Dianne McGuire


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