May 9, 2005
Tax information can be misleading
Differences in levies among states add to confusion
By BRIAN MACKEY and DORI MEINERT
COPLEY NEWS SERVICE
WASHINGTON - Still smarting over your 2004 tax bill? You might find some comfort in knowing that Illinois ranks below the national average in per-capita taxes needed to run the state government.
But the small size of the gap and the perplexing nature of the public revenue puzzle offer only tentative relief.
On a per-capita basis, Illinois ranked 24th in taxes per person, almost dead center among the 50 states. It took $2,005 for every man, woman and child last year compared to a national average of $2,024 per person, according to a recent U.S. Census Bureau report. In terms of overall taxes collected, Illinois ranked fifth. That shouldn't be a surprise because the state is fifth in population.
However, those numbers alone can create a misleading snapshot of how much comes out of Illinois residents' wallets, several tax analysts warned, because every state has its own unique mix of state and local taxes and fees.
For example, the Census Bureau report didn't include local property taxes used to fund schools and many other public services in Illinois. State property taxes account for only one-third of 1 percent of the property taxes levied in Illinois. The rest, more than 99 percent, are local.
To show how confusing and possibly misleading that can be, the Census report shows Illinois collects $4 per person in state property taxes compared with a national average of $39. In reality, each Illinois resident is paying, on average, $1,278 in property taxes collected by the state and its 6,000 local governments, according to 2002 Census figures, the most recent to include state and local taxes.
But even all those numbers do not complete the picture. Illinois and its municipalities also collect fees, including license plate registrations and city vehicle stickers, that aren't included in the Census Bureau report.
"We're not a high-tax state, any way you slice it," said Ralph Martire, executive director of the Center for Tax and Budget Accountability in Illinois. "But there are different ways to slice it ... people can glom onto whatever stat they want to make their case."
If you smoke or drive a car, you might be better off in a state where the state surcharges on tobacco and motor vehicle licenses are lower. Illinois state taxes on tobacco products were $60 per person last year, compared with the national average of $42. But again, that disregards local taxes.
In 2002, Illinois collected $43 in combined state and local cigarette taxes for each resident of the state, while the national average was $32 per person. Of that $43 collected in Illinois, $37 went to the state and $5 to local governments, according to the Census Bureau statistics. That local number tied for the third-highest per-capita amount in the country. There were 13 states that collected more in state and local cigarette taxes per capita than Illinois.
Illinois motor vehicle license fees netted the state $108 per person in 2004, 80 percent higher than the national average of $60. State taxes on insurance premiums were much less than the national average, $30 per person compared with $47, and taxes on public utilities are more than triple than the national average.
Illinois is more dependent on local rather than state taxes than the U.S. average, with 48.7 percent of its 2002 revenues coming from local rather than state sources, compared to 45.1 percent nationally, said Kim Rueben, a visiting scholar with the Washington-based Urban Institute.
An Illinois Tax Foundation study published Thursday reported that Illinois received a smaller share of its revenue from income and sales taxes than the national average. But that is not the case with all revenue sources. In Illinois, for example, state and local governments were far more reliant on property taxes than the national average.
The foundation's study, based on 2003 state and 2002 state and local Census figures, reported that 33.1 percent of state revenue came from income taxes - 6.1 percentage points below the national average among the 38 states that have both income and sales taxes. Likewise, the 28.9 percent of Illinois' revenue that comes from sales taxes is 1.9 percentage points lower than the 38-state average.
Illinois' overall state and local revenue burden is slightly less than the national average on a per-capita basis and near the bottom as a percent of income, a reflection of the state's comparative wealth, Rueben said. In 2002, Illinois ranked 25th on a per-capita basis and 45th as a percent of personal income for total state and local revenues.
"Per capita is kind of meaningless," Martire said. "Anything that just does per capita is going to be misleading, especially in a wealthy state like Illinois."
Looking at the state tax collections for 2004, it would appear that Hawaii, Wyoming and Connecticut residents bear the greatest state tax burden, while the lowest last year were Texas, South Dakota and Colorado.
Hawaii's taxes averaged $3,048 per person, which was more than double the per-capita amount of Texas, which was in last place for collecting just $1,367 per person. Hawaii's tax rate is high because public schools there are funded by only the state.
Nationwide, state tax collections grew 8.1 percent, to $593 billion, in fiscal 2004 - a $44 billion increase from 2003, according to the Census Bureau. All 50 states showed an increase.
Illinois' tax burden also is below the national average in a ranking published last month by the Washington-based Tax Foundation.
The foundation ranked Illinois' state and local tax burden as 30th nationally, or 9.8 percent of income, just below the national average of 10.1 percent. The foundation adjusts for tourism taxes and other fees that Illinois residents pay out of state, adding them as a cost to Illinois' taxpayers.
"In the last 15 years, states have sought increasingly to export their tax burden, to raise higher and higher taxes from out-of-state so they can tell their voters that they're not raising their taxes, but they're still raising money," spokesman Bill Ahern said.
Critics argue that the foundation's rankings are based on projections of state and local tax revenues, not actual collections, and typically overstate the tax burden.
Ahern blames the Census Bureau for being slow to come out with local revenue figures, but said the projections are the foundation's best effort to give taxpayers and the media some relevant information each tax season.