Earlier this month, Cook County Assessor Jim Houlihan jumped into the ongoing state budget debate to highlight an important point that lawmakers often gloss over. By not taxing services, Illinois' outdated tax system all but ignores the fastest growing segment of the state's economy. It's a reality that states across the nation are beginning to face up to, the New York Times reported over the weekend. For an explanation, we turn to an excerpt from the article:
But as the nation’s economy shifted to one focused more on services,
the tax system mostly did not budge. And so, in 2009, states raised
$230 billion in sales taxes; had they taxed all services, too,
according to Joseph Henchman of the Tax Foundation, a nonpartisan
research group, they might have raised twice that.
By Houlihan's count, lowering the state sales tax from 5
percent to 3.25 percent and expanding it to a wider range of
services could generate an additional $1 billion in revenue annually. Combined with a series of tax reforms outlined under HB 174, which proposes expanding the tax to 39 services, the state could generate up to $7 billion more each year. As Moody's pointed out last month, failing to modernize the tax code will be awfully expensive going forward.