Reports from Springfield indicate that our intrepid political leaders are squabbling in the backrooms again. This time it is over whose names will appear with the checks many of us will receive from Springfield in the fall.
Those who pay property taxes on homes in Illinois already get a break off their Illinois income tax, to the extent of a credit against the income taxes they owe. Gov. George Ryan’s recent signing of the Homeowner’s Tax Relief Rebate ensures that every household that applied for this credit in 1999 will receive a second equal benefit. But rather than having to wait until next spring to claim the benefit on an income tax return, each household will receive a check in the mail. The money is coming from the amounts the state received in the tobacco settlement and should be in the mail before the November elections.
Who wouldn’t want to claim credit for producing such a windfall?
I wonder, however, who will claim credit for devising a scheme that is likely to result in as much as 40 percent of the amount of these checks being sent directly to the federal government as income taxes next spring? These “property-tax rebates” from Springfield will be taxable income for a large portion of the taxpayers who receive them; it certainly will be taxable to almost anyone who deducted their income and property taxes in computing their federal income taxes last year. Married taxpayers who itemized deductions on their federal tax returns and had deductions totaling more than $7,500 will have to include the rebate in their income. Single taxpayers who itemized and had more than $4,600 in deductions will similarly have taxable income.
A $300 property-tax rebate check could represent less than $180 to these taxpayers.
What percentage of the estimated $280,000,000 Homeowner’s Tax Relief Rebate will end up in the hands of the federal government? It’s hard to say with any precision because those who do not itemize may not have to include the amount they receive as income. If three-quarters of a million households receive a $150 rebate and send 28 percent of their rebate off as federal taxes, at least $25,000,000 would likely end up directly in the feds’ hands
It could be worse. If the IRS were to see the checks for what they are, a distribution of the tobacco settlement that has little or nothing to do with the local property tax system, and everything to do with trying to buy political favor by distributing money directly from the tobacco settlement into the hands of the individuals who are most likely to vote, the entire check could be taxable to everyone receiving it. In that case, something closer to $60 million could go straight back to the feds.
Was this siphoning off of the tobacco settlement money to Uncle Sam inevitable? Certainly not. Had the money been spent in ways more closely tied to the tobacco-related problems that prompted the litigation, there’s a good chance none of it would have been taxable to those receiving the benefits. Most health-care benefits, including subsidies for long-term care and prescription drugs, health-education programs and medical research can all be paid without an automatic and immediate sharing of the funds with Washington through federal income taxes. Property tax relief more carefully targeted could have been secured without so immediate a windfall to Uncle Sam, especially if our state leaders had trusted local governments as much as they apparently trust the federal government to use the funds wisely.
Getting a check with a politician’s name on it into the hands of Illinois homeowners within weeks of the November election is likely to cost Illinois taxpayers at least $25 million, not including postage and handling. Why would anyone fight over claiming credit for that?
