Lasting Cure For Property Tax Pain

July 24, 1989

If the angry homeowners from Chicago`s North and Northwest Sides moved to California, Wisconsin, Georgia or North Carolina, their real estate bills might be smaller but their state income tax would be twice as high as the new Illinois rate of 3 percent.

If they moved to Baltimore, they`d pay a 2 or 2.5 percent city income tax and a 4 or 5 percent state tax.

In Detroit, it would be a 3 percent city income tax and 4.6 percent to the state.

In Philadelphia, a stiff 5 percent city income tax and 2 percent to the state.

And so it goes in urban areas around the country. If you get a break on one kind of tax, you can expect to be hit with a big bill from another.

People in Illinois enjoy one of the lowest state income tax rates in the nation, despite the recent increase, and they pay no municipal income tax. They get socked instead through one of the worst ways to finance government:

the property tax. If your income stays relatively flat while the value of your house soars, the property tax is bound to hurt. It`s nice that the old house you bought for a song is now worth a lot more, but an appraiser`s statement won`t cover the extra $500 or $1,000 due soon to the county treasurer.

What`s the remedy? More economical government would be No. 1 on everybody`s list, but where to cut? Schools are the biggest item, by far, on Illinois property tax bills, but education is not the place to skimp. A new public library, jail expansion, flood control, community colleges-these are the items that drive up property taxes, but most people seem to want them.

The biggest property-tax eaters in Chicago`s government-the fastest-growing part of the city budget-are pension funds. They`ll get $200 million in property tax money this year, more than the city corporate fund will get. An analysis by an expert financial team predicted that the city pension funds will soon need an extra $100 million a year, every year, just to keep their current unfunded liability from soaring. And there is little the city administration can do about this because the state legislature, not the city council, decrees the level of city pension benefits.

Mayor Daley promised to cut the city`s share of the Chicago property tax bill next year when new state income tax money flows into his treasury, and other mayors around the state should do the same-if they can afford it. But even if municipalities rebated all their new state dollars, property taxes wouldn`t fall by more than a few percentage points.

Governments need revenue sources that grow along with inflation. Getting it through the property tax is cruel to people of moderate means whose neighborhoods are suddenly hot on the real estate market and people whose towns have little industry. Short of slicing schools, police, fire protection and public pensions-the big four of local spending-there is really only one remedy. That is the income tax.

If homeowners want permanent, subsantial cuts in property taxes, they should be prepared to pay a much higher state income tax-or a new city income tax.