Illinois Government Research no. 54 1981: Tax Incidence: Property Taxes, Income Taxes, and Equity

Property tax has been the major source of revenue for local governments in the United States from the beginning, and it remains so today in both the nation and in Illinois Despite its longevity, it is still a controversial tax. It is controversial in regard to its relative importance among the array of various state and local taxes, its administration, its effect on business activity and industrial location, and especially, in regard to the distribution of the ultimate burden of the tax. Despite its use over the course of several decades ??? even centuries, there is still substantial controversy among economists and confusion among the public about who bears the burden of the property tax. The purpose of this report is to clarify the issue of the incidence of the property tax as compared with alternative revenue sources, especially the state income tax. An understanding of the distribution of the burden of the existing property tax and the effects of changing the level of taxation is vital in evaluating possible policy alternatives, such as the full or partial replacement of local property taxes which finance schools with an increase in the state income tax. Obviously such choices involve many other considerations in addition to the incidence of the various taxes, yet incidence questions are of crucial importance and the focus of much public debate.published or submitted for publicatio