Lawmakers: Service tax hike unlikely despite $8 billion to be had

[April 27, 2011]  SPRINGFIELD -- A new report says Illinois is ignoring as much as $8 billion in potential tax revenue, but there is little support from either political party in Springfield for a grab at the money.

The Legislature's Commission on Government Forecasting and Accountability took a look at how Illinois taxes services -- everything from providing electricity and natural gas to cutting hair and lawns. The report states that Illinois does not tax many services -- only 17 -- and that other states tax many more, with the average being 56. COGFA's analysis estimates that the state could generate between $4 billion and $8 billion if lawmakers were to expand the service tax base.

State Rep. Mike Tryon, R-Crystal Lake, said that's not going to happen. Tryon said he doesn't know many Democrats in Springfield, and even fewer Republicans, who would vote for another tax increase. He said passing the 67 percent personal income tax hike earlier this year has left a bad taste with many lawmakers.

"Are we the highest in sales tax? Are we the highest in property tax? Now we're midway in income tax, and then be the highest in services taxes?" Tryon asked. "We're building a government we can't afford."

But it's not just the GOP that is reluctant to talk taxes again. State Rep Elaine Nekritz said few Democrats want to fight that fight again.

"I think that another tax discussion has almost a zero likelihood of happening," she said. "That being said, the only scenario which I could see (a service tax hike) is if we were to roll back part of the income tax increase and move to a broader sales tax base."

Nekritz said the next realistic, and politically viable, chance to talk about taxes will come in four years, when future lawmakers will have to decide whether to make this year's income tax increase permanent.

Ralph Martire with the Center for Tax and Accountability said many states have already looked at service taxes, and Illinois will likely have to do the same. Martire said Illinois' economy has changed, but the tax code has not.

"We tax the sale of products. ... Back in 1965 the sale of products was 32 percent of all economic activity in Illinois," he said. "Today that has declined to 12 percent."

In the same period, services in Illinois have jumped from 35 percent of the economy to more than 60 percent.

Martire makes no secret of the fact that he'd like to see a service tax increase or expansion, but critics said he's calling for more taxes and not enough spending controls.

Tryon said Illinois just raised $6.7 billion from the personal and corporate income taxes. Some of that money will go either to reduce the state's deficit or to pay Illinois' massively underfunded pensions.

"I'm not looking at putting more tax burden on Illinoisans," Tryon said. "I believe the way to turn our economy around is by creating jobs. And you don't do that by raising taxes. You do that by providing a platform for a consumer-driven market to flourish."

Tryon said that unless lawmakers stop spending, adding new taxes is not going to solve the state's budget problems.

But Nekritz said pointing the finger at spending is not telling the whole story.

"I think for the GOP to say we're willing to cut $7 (billion) to $8 billion from (the budget) ... is a little bit disingenuous," Nekritz said.

Kelly Kraft with Gov. Pat Quinn's budget office said the whole story is complicated when all of the state's taxes are taken into consideration. She said the situation is also ever-changing.

"Obviously there are many considerations to take into account when contemplating taxing services, and we will continue to hear arguments for and against the idea," Kraft said.

The report from COGFA does not advocate for or against a service tax increase or expansion. But the report does highlight issues that lawmakers may face if they choose to take on service taxes.

[Illinois Statehouse News; By BENJAMIN YOUNT]