Ok – Guvnor Walker, State Rep Robin Vos, and City of Racine Mayor Cory Mason – I’ll take that bet – and claim that not only do you fall short – but the only way SE WI. will be able to avoid Bankruptcy, is to implement higher property taxes in accordance with Chicago Federal Reserve Bank Policies!
The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.
Note: This post is based on previous work presented by the same authors at the forum “Navigating Pension Reform in Illinois: What Lies Ahead”, held on April 17, 2018 at the Chicago Fed. The original presentation is available here.
The State of Illinois has a very large unfunded pension liability and will likely have to pay much of it off by raising taxes. The Illinois Commission on Government Forecasting and Accountability estimated the state’s unfunded liability at $129.1 billion in mid-2017, which was about 19% of state personal income. Benefits to public employees are protected under the Illinois Constitution, and a recent attempt to reduce the unfunded liability by reducing retirees’ benefits was struck down by the Illinois Supreme Court. So, assuming that the state can’t reduce its current pension obligations and that it wants to maintain its current level of services, Illinois residents are going to have to pay higher taxes. What’s the best way to do it?
Because the debt is so large, it’s unrealistic to think that new taxes (such as a tax on legalized marijuana or financial transactions) or increases that affect only a narrow segment of the population will be enough.
Illinois will have to find additional revenues from already existing tax bases, either by increasing rates, expanding the definition of what is taxable, or a combination of the two. Illinois state and local governments have three primary tax revenue sources—income, sales, and property—and each presents a unique set of tradeoffs in terms of how it affects the economy and who pays it.
In our view, Illinois’s best option is to impose a statewide residential property tax that expires when its unfunded pension liability is paid off. In our baseline scenario, we estimate that the tax rate required to pay off the pension debt over 30 years would be about 1%. This means that homeowners with homes worth $250,000 would pay an additional $2,500 per year in property taxes, those with homes worth $500,000 would pay an additional $5,000, and those with homes worth $1 million would pay an additional $10,000.
There are several good reasons to pay off Illinois’s pension debt through a statewide residential property tax:
- Fairness: Illinois residents who have benefited most from the past services of governmental employees are more likely to be homeowners, so it seems reasonable that they should pay a larger share of the costs.
- Efficiency: Standard economic theory predicts that home values go down in response to new property taxes (that is, they are “capitalized” into home values). Current homeowners would not be happy about this, but it would be a good result for the Illinois economy. That’s because the new taxes wouldn’t affect people thinking of moving to Illinois. While they would have to pay higher property taxes, that would be offset by not having to pay as much for their new homes. In addition, current homeowners would not be able to avoid the new tax by selling their homes and moving because home prices should reflect the new tax burden quickly. (We included this “tax penalty” effect in our calculations below.)
- Transparency: The payment amounts and duration of the tax would be known in advance.
- Certainty: The property tax would be dedicated solely to paying for the state’s unfunded pension liability.
- Equity: Wealthier people would pay more. The plan could also be modified so that the tax rate is graduated rather than flat (for example, by exempting the first $50,000 of home value or exempting households with incomes below a certain threshold).
To Consider – the Counter-Claims of Governor Scott Walker, Boss Vos, and Cory “The TIC” Mason, who plan to finance SE WI with Foxconn PLUS a multi – billion Taxpayer funded investment:
From WI State Journal:
In what’s being called the largest economic development project in state history, Taiwanese electronics giant Foxconn plans to build a $10 billion plant in Wisconsin that would create liquid-crystal display panels and employ as many as 13,000 people.
The planned Wisconsin plant is expected to open in 2020 and be part of a 20 million-square-foot campus on at least 1,000 acres — a location Gov. Scott Walker has dubbed “Wisconn Valley.”
Estimated 22,000 additional jobs
The plant is intended to be one of the largest manufacturing campuses in the world, according to Walker’s office, and could draw 10,000 construction jobs over the next four years while the plant is built.
Walker’s office projected the project would create at least 22,000 “indirect and induced jobs” throughout Wisconsin and will generate an estimated $181 million in state and local tax revenues annually, including $60 million in local property taxes.
Walker said the Foxconn jobs will have an average annual salary of more than $53,000 plus benefits.
REALLY! Well, maybe NOT!
Current Wisconsin Foxconn Employee Count = ? (close to ZERO )
Current Wisconsin Foxconn Operational Manufacturing Facilities = ZERO.
Current Otput of Foxconn LCD TV Screens = ZERO.
While debt + interest incurred by local governments continues to increase, along with property taxes, debt service payments, and Racine County plans to impose a local sales tax.
” Racine Floating A Sales Tax” City of Racine commits-to-Paris-climate-accord while supporting Foxconn that exceeds the pollution standards. Then suggesting a .5 sales tax after Racine County spends millions on taking land from taxpayers to support Foxconn. We bring the perspective down to the local level to discuss issues that affect our own city of Racine, WI We’re about investigative reporting on topics that matter: corruption, conflicts of interest, broken systems, abuses by institutions and individuals with power, whether that’s government, nonprofits, or the press itself.
State, County, and Local Governments are investing $Billions$ in borrowed money; abusing eminent domain, “Blight” designations, TIF guidelines, Pollution Control Standards, destroying the preservation of Farmland and Wetlands, while redirecting the natural flows and purity of massive amounts of fresh water, along with a Healthy Environment, to an Entity which promises to produce LCD TV screens – employing 13,000 people at an average salary of $53K each + Bennies, all to prop up the Failed (and Bankrupt) Governments of SE Wisconsin – which continue to loot and oppress the remaining, and largely poor, minority, under-educated, criminal, and exploited underclass.
Walker = ZERO.
Concerned Residents = ONE