Illinois cellphone taxes are highest in nation, average $374 a year

Taxes alone hike the average Illinois cellphone bill by 31%.

It might be best they can’t hear you now, because you might be saying some unkind words.

Illinois in 2019 again topped the nation for how much residents are taxed on their cellphone service, according to a new survey by the Tax Foundation. The Illinois average was $374 a year for the typical family paying $100 a month for four cellphones. The national average was $260.

Thanks to competition and more users, average cellphone bills nationwide have dropped to about $38 per line from $50 per line in 2008. But taxes have offset those gains for consumers. The Tax Foundation found the average tax burden during that time jumped to nearly 22% nationally from about 15%.

In Illinois, that burden is now 31%, which comes from five different layers of taxes:

• 7% state telecom excise tax
• 6.5% simplified municipal tax (the Tax Foundation uses the average of a state’s capital city and largest city rather than gathering tax rates from every municipality. In the case of Illinois, Springfield’s rate of 6% and Chicago’s rate of 7% are used)
• 8.59% for combined state and local wireless 911 tax
• 0.05% fee for telecommunications for persons with disabilities
• 9.05% federal universal services fund surcharge

Illinois’ average cellphone tax increased by almost $44 over the prioir year, compared with a $31 increase nationally. Illinoisans also saw a $36 bump between 2017 and 2018. Illinois’ taxes were the nation’s highest this and last year, but ranked No. 4 in 2017.

And it’s worse if you live in Chicago.

“Excessive taxes and fees, especially the very high per-line charges like those imposed in Chicago and Baltimore, impose a disproportionate burden on low-income consumers. In Chicago, taxes on a family with four lines of taxable wireless service paying $100 per month are more than $500 per year – about 43% of the bill,” the Tax Foundation wrote.

The unfair burden on low-income and young people is aggravated because they are more reliant on cellphones. The Centers for Disease Control and Prevention reports 57% of all adults live in wireless-only households, but for those living in poverty the rate is 67% and for adults younger than 35 the rate is 76%.

During former Mayor Rahm Emanuel’s administration, Chicago twice drove up phone service taxes to deal with budget deficits driven by city worker pensions. In 2014 the city hiked its 911 tax on every phone line by $1.40 to $3.90 to increase contributions to the city’s laborers pension fund. In 2018 the city hiked the 911 fee by $1.10 to $5 per line.

Mayor Lori Lightfoot is facing an $838 million shortfall in the city’s $11.65 billion budget, again driven by public pension costs. She sought state lawmakers’ help but failed to gain it during the November veto session to increase a progressive “exit tax” for those selling real estate and to get a bigger cut of any Chicago casino taxes.

Lightfoot inherited four city pensions that are $29 billion in debt and only 25% funded. Chicago residents are responsible for eight local public pension systems that total $46 billion in pension debt, with payments expected to rise by $1 billion during the next four years.

Add to that the nation’s worst statewide pension debt – pegged at $137 billion by the state’s estimates, but at $241 billion by a less-generous analysis – and the reason Illinois ranks as the “least tax-friendly” state in the nation becomes clear.

Still, Gov. J.B. Pritzker is pushing a ballot initiative to drive Illinois taxes $3.4 billion higher to pay down pension debt. Voters on Nov. 3, 2020, will be asked to scrap the Illinois Constitution’s flat state income tax protection. The change would grant state lawmakers greater power to change tax rates by income brackets, which nearly half of voters polled recently saw as a “blank check” for politicians to spend more.

In the past 30 years only Connecticut chose to implement a progressive income tax, sold as a way to relieve the middle class’s tax burden and cut property taxes. It did the opposite: middle class income taxes increased 13%, property taxes increased 35%, it cost the state jobs, increased poverty and did nothing to fix the state’s finances.

Pritzker is using the same sales pitch to sell Illinois voters on his tax hike proposal.

Illinois already tops the nation for the money it spends on pensions and set a record last year of $10 billion, which is 25% of the state’s general revenue funds. That is expected to climb to $11 billion and 27% of the budget during the current budget year.

The real solution to pensions was never increasing taxes, whether on cellphones or on income, but rather to control future growth. That requires a constitutional amendment to protect already-earned pension benefits while allowing the state to bring the growth rate of future benefit accruals in line with inflation.