Reeder: Voters beware, new tax usually means extra tax
By Scott Reeder firstname.lastname@example.org October 24, 2012 10:16PM
Updated: November 26, 2012 7:21AM
I was awakened one morning by my wife shaking me and whispering, “There is a mouse in the house, and I want to know how it got in.”
“Somebody probably left the door open too long, and it scampered inside,” I whispered back.
“We have caught two mice in two days, so how can one mouse getting in be responsible?” she said.
Well, if that mouse were pregnant …
New taxes are bit like pregnant mice — leave the door open a crack and soon they start multiplying.
Several communities across Illinois are voting in Nov. 6 referendums on whether to open the door to a new sales tax that raises revenue for school districts.
The sales tax is being marketed to voters as an alternative to the property tax when it really it should be pitched as an addition to the property tax.
A more truthful depiction would be to describe it as a new mechanism for school districts to be able to go deeper into debt.
Stifel Nicolaus, one of the nation’s largest investment banking firms, put out a slick video that depicts the sales tax as a wondrous financial instrument designed to reduce property tax bills.
I’ll let you in on a secret. Outfits such as Stifel Nicolaus have one thing in mind — marketing debt.
They get paid every time they handle a bond issue for a government and sell it off to investors on Wall Street.
“Usually what sparks a school district asking for a sales tax referendum is a desire to build a new school or make improvements to existing buildings,” said Roger Eddy, executive director of the Illinois Association of School Boards.
“Oftentimes, local school boards feel like they are tapped out on local property taxes and that they can’t (raise them) any higher. This gives (the boards) an alternative,” he said.
Eddy, a vocal advocate for the sales tax, said some communities have used the sales tax income to reduce their property tax levy.
One such example is Abington, a small town in Knox County in west central Illinois. A countywide sales tax was instituted in 2010, and Abington used its share of the new tax revenue to retire some of its long-term debt and reduce its tax levy.
But a larger, neighboring taxing district in the county used its share of the tax revenue to borrow more.
Once a county opens the door to a new tax such as this, there is no guarantee it will ever go away. Will the sales tax disappear once a particular construction project is completed? Probably not.
In 25 years covering government, I’ve found that nothing is as permanent as a temporary tax.
There is no way for voters to know with certainty that instituting a sales tax will result in long-term, or even short-term, property tax relief.
“At this point in Illinois, it would be naïve to think that if governments are going to collect a certain amount in sales tax that they are going to give it back in property taxes,” said David From, Illinois director for Americans for Prosperity, a conservative political group. “That hasn’t been the reality.”
“Frankly, I don’t think allowing the government to collect more money so that maybe they will give you some tax relief is a good way to proceed,” From said. “The better way is to not allow them to collect it.”
Scott Reeder is a veteran statehouse reporter and the journalist-in-residence at the Illinois Policy Institute, a nonprofit research group that supports the free market and limited government.