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The Illinois Property Tax

History and Structure

Nathan B. Anderson and Therese J. McGuire

August 2007, English

The property tax is the most important independent source of local government revenues in the United States. Because of its importance to local government finance, reforms of the property tax system are constantly debated and the debates recycle over the years. As of 2006, forty states constrain local government property tax revenues by limiting tax rates, limiting revenues, or limiting both rates and revenues. Illinois is one of 23 states that have placed limits on both property tax revenues and property tax rates. Despite the limitations on property taxes, discussion continues on property tax reform including proposals that replace substantial portions of property tax revenue with revenue from state income and sales taxes. These complicated property tax systems are difficult for voters, policymakers, and researchers to understand, let alone reform. This report examines both the current property tax institutions in Illinois and the history behind these institutions. Only through an understanding of the history and present state of the property tax in Illinois can discussion about suitable reforms begin.

Armed with a basic knowledge of the institutional details of the Illinois property tax, we begin a policy discussion of property tax constraints in Illinois and across the nation. In order to discuss the potential benefits and costs of the property tax constraints in Illinois we compare property tax system with constraints to an unfettered system. We make the comparison of an unfettered system to a constrained system using the criteria of equity, efficiency, and simplicity, while assuming that the constrained and unfettered systems collect the same amount of property tax revenues. Comparing the equity, efficiency, and simplicity properties of constrained and unfettered systems identifies and clarifies important issues concerning the direction of and need for property tax reform.