If congressional leaders adopt a 1 percent statewide residential property tax to shore up the state’s pension debt, Illinois’ property tax burden would be the highest in the country. Illinois currently ranks 45th in the nation for its property tax burden.
This 1 percent residential property tax would be in addition to the already-high residential property tax on residential properties.
Tax Increase Needed to Fund Pensions
Illinois has an unfunded pension liability, estimated to be about $129.1 billion in 2017. This pension benefit is guaranteed within the state’s constitution, and attempts to reduce retirees’ benefits to shrink this liability have been struck down by the Illinois Supreme Court.
There are only three main revenue sources for the state: income, sales, and property taxes. The argument in favor of a 1 percent residential property tax—to be paid each year until the pension fund’s debt is erased, estimated to be 30 years—is that homeowners are the ones who benefit the most from the services of government employees, which includes police departments, fire departments, and the school systems.
The argument against this tax is that people are already leaving the state because of high property taxes. Illinois homeowners have seen their property taxes grow six times faster than incomes between 2008 and 2015. Chicago’s housing market has been slow to recover from the economic downturn, with many homeowners still underwater on their mortgages, and this 1 percent tax will eat into that further.
Economists argue that although current homeowners wouldn’t be happy about this additional residential property tax, it would attract homeowners to the state, helping Illinois’ economy overall.
This tax plan could be modified to provide an exemption of the first $50,000 of home value or to households with incomes below a certain level to help those who might have difficulty paying this additional property tax.
Either way, the economists argue, barring a constitutional fix to the pension issue, Illinois citizens are going to have to pay higher taxes somewhere to clear the debt of the pension fund, and with the 1 percent residential tax, there would be a clear timeline for clearing that debt. A sales tax on marijuana or any other product will not bring the dollars necessary to pay down the debt of the pension liability.