* The Illinois State Medical Society came out against the gross receipts tax yesterday.
llinois’ foremost doctors group gave a thumbs-down Thursday to Gov. Rod Blagojevich’s sweeping health care reform plan and the new statewide corporate tax that he would use to pay for it.
The Illinois State Medical Society, a politically powerful association of 13,000 physicians statewide, said it still supported the idea of universal health care, just not the governor’s plan.
* More…
“I’m operating under the assumption that the gross-receipts tax isn’t going to pass, at least in its present form,” said Charles Wheeler, director of the public-affairs reporting program at the University of Illinois at Springfield.
The medical society’s criticisms are significant, he said, because the group apparently weighed the new money that doctors could receive under Illinois Covered against other details of the plan.
“I don’t know if it’s the last nail in the coffin,” he said. “From my perspective, the coffin lid was nailed shut some time ago.”
* Judy Baar Topinka claimed the tax proposal was “hideous.”
“This is just the biggest tax plan that’s ever been proposed, the biggest spending plan. He knows that the state is in hock; it’s in debt; it has no money,” she said in Chicago Thursday…
* Declaring the governor’s gross receipts tax “dead on arrival,” the Sun-Times editorial board suggests looking at a tax swap instead…
There is an alternative, but it will require the governor to reverse his opposition to raising the sales and income taxes. The governor is trying to avoid hitting up “working families” but he won’t admit the obvious — taxes imposed on businesses are passed on to working families anyway. He also says businesses aren’t paying their “fair share” of the income tax, ignoring the fact that businesses pay a host of other taxes.
One approach we have long advocated is contained in Senate Bill 750, which would generate more than $9 billion by extending the sales tax to certain services and by raising the individual income tax rate to 5 percent from 3 percent and the corporate rate to 8 percent from 4.8 percent. A huge chunk of that money — $3.6 billion — would be returned to taxpayers in the form of property tax relief or tax credits, with the rest going to education.
* But budget honcho John Filan declares the corporate income tax system “broken” in an op-ed.
Consider that in 2004, average individual tax filers paid $1,500 in taxes, while 12,500 of the largest corporations in Illinois with billions in annual revenue paid an average of $151 in corporate income tax. This simple statistic shows astounding inequity in our tax system that cannot continue.
Dozens of corporate loopholes for big businesses have increased the burden on individual taxpayers and small businesses. The governor’s proposed gross receipts tax is tailor-made to fix this inequity and exempts 85 percent of businesses in Illinois, in addition to exemptions for exports, retail food and prescription drugs.
What Filan isn’t telling you is that corporate tax receipts since 2004 have been way up.
* Meanwhile, the Center on Budget and Policy Priorities, a liberal think tank, says the GRT isn’t a bad idea, but believes changes must be made…
One potential problem with a GRT is its impact on high-volume, low-profit margin businesses, for which the tax can represent a high percentage of potential profits. Another potential problem is that a GRT favors businesses that conduct most operations in-house over businesses that purchase intermediate goods and services from other firms, since the tax is imposed each time a business purchases inputs from an outside firm. (This latter problem is called “pyramiding.â€)
Illinois can address both of these problems, however, by allowing businesses to subtract the cost of goods purchased from other companies from the gross receipts subject to the tax. Texas and Kentucky allow a similar, although broader deduction. If the cost of purchased inputs were deductible, a retail discount clothing store — an example of a high-volume, low-margin operation — would pay GRT not on its total receipts, but on its receipts minus the amount it paid the wholesaler for the clothes it sold. This would eliminate the disadvantage that such a store would have under a GRT compared to a boutique clothing store with much fewer sales but a high profit on each sale.
Similarly, the ability to subtract the cost of purchased inputs would eliminate most pyramiding, since the taxes paid during the intermediate stage of production would be included in the purchasing business’s cost of purchased inputs and thus would not be taxed again. Modifying the GRT in this way would help level the playing field between companies that purchase goods and services from other companies and “vertically integrated†companies that include multiple stages of production and have in-house staff to provide legal, accounting, and other services.
The CBPP claims the change would reduce GRT revenues by 30-40 percent, but includes some other ideas to make up that shortfall. Go read the whole thing.
Thoughts?
- Carl Nyberg - Friday, May 4, 07 @ 8:34 am:
For those who object to the GRT because the tax swap is “better” please explain why it will be possible to do a tax swap now when it hasn’t been possible for the last twenty years.
Dawn Clark Netsch ran on the tax swap. The Tribune editorialized in favor of the tax swap, right? That was the endorsement that said DCN was right on the issues, but Jim Edgar possessed leadership (having the right reproductive organs or being Republican or something).
If the tax swap has a chance of passing, why now? Because it looks modest compared to the GRT? Because the state is financially worse off than it has been in the past?
Why is the tax swap going to pass this time when it hasn’t in the past?
Or are the people advocating tax swap really just pretending to be reasonable by advocating for something they’re sure won’t pass?
- Truthful James - Friday, May 4, 07 @ 8:39 am:
Good coverage, Rich.
And thank you for mentioning that corporate (and individual) income tax receipts are way up — as well as state sales tax receipts.
Dislike him for many other reasons, but hank George Bush and his Federal tax cuts for that windfall accruing (falling over the good and the bad alike) to all states.
Look closely at the State’s Budget/Appropriation forecasrs and cycle and you will see that this beneficence is what gave rise to the sea of pork some of which the Governor passes out as if from his pocket.
However, the different times, they are coming. As the Federal Congress lets sunset fall on the tax cuts, the windfalls will be becalmed.
- Carl Nyberg - Friday, May 4, 07 @ 8:41 am:
The medical society’s criticisms are significant, he said, because the group apparently weighed the new money that doctors could receive under Illinois Covered against other details of the plan.
The Illinois State Medical Society in the end evaluated the plan primarily from the perspective of rich businessmen, not health care providers. Expanding health care coverage is laudable, but it can’t be done in a way that cuts into the incomes of the richest doctors.
- Buck Naked - Friday, May 4, 07 @ 8:45 am:
Why is Ms. Topinka’s opinion relevant here? Unless I’m mistaken, she lost the election for governor. Furthermore, our new state treasurer has come in and had great success cleaning up the messes that she created during her tenure.
Perhaps we should get a quote from Jim Oberweiss. What about Alan Keyes — what does he think of the GRT?
- Buck Naked - Friday, May 4, 07 @ 8:46 am:
I agree with Carl on the Med Society. What a despicable display of greed over mission. Shame.
- Bill - Friday, May 4, 07 @ 9:04 am:
Some form of revenue enhancement will pass this session because the state has not lived up to its fiscal obligations for so long that the structural deficit has ballooned beyond control.It is not possible to cut our way out of this dilemna. School and road construction and mantainence, the ever growing pension debt, the health care crisis, all need to be addressed NOW.Putting the solution off will only make it more expensive. The people of Illinois recognize the state’s obligations and are willing to pay a little more tax if we can then have well funded schools and health insurance for everyone.
The tax increases proposed by the 750 advocates seem to me to be much more regressive and draconian tham the GRT. The plan also includes a “swap” which will merely transfer large sums of money from schools to other units of local gov’t. at the state’s expense.Does anyone really believe that property taxes will stay reduced after a year or two?
Whatever, we need a solution and we need it now. Whether it is a flawed plan like the “swap” or an equitable, fair plan like GRT will be the decision for the GA.
If the grt is dead, it is dead because of who advocated it not because it is not the best plan. Raise income and sales tax if you must but forget about the ruse of the “swap”.
Be honest with the working people of Illinois.
- Reddbyrd - Friday, May 4, 07 @ 9:16 am:
Wow
Another Rapid Respone fron JudyBore that must make Andy McKena proud. Maybe the prop up the BrickheadJoe to say the GRT will mean more murders in the state. They should be careful
Some might think GRT means Get Rid of Topinka
- steve schnorf - Friday, May 4, 07 @ 9:25 am:
Any of you geniuses ever consider the possibility that JBT has some insight into the state’s financial workings after the time she spent in Springfield. I don’t agree with the “hideous” part, and I do think the Governor need to be given substantial credit (this whole debate wouldn’t be taking place at such a high level if he hadn’t made the sweeping proposal that he did), but why demean Topinka’s credentials to comment. Most of the commenters here have never lost soley because they’ve never run.
- Bill - Friday, May 4, 07 @ 9:33 am:
Ouch! Who woke Steve up?
- fed up dem - Friday, May 4, 07 @ 9:39 am:
Are any other renters concerned about a swap? I rent and would loose 2% of my income without my landlord giving me a break on the real estate taxes. Also even though I pay part of the real estate taxes in my rent, I can’t take that as a deduction on my income taxes. It seems those of us who don’t own a home are never considered.
- Truthful James - Friday, May 4, 07 @ 9:44 am:
Gadzooks, am I agreeing with both Steve and Bill in the same comment. What a fusion.
Redd — In my heart, I believed that JBT was an inept and inane candidate for governor. That has no reference point in applying what she learned as State Treasurer to the GRT proposal.
Bill –
One can only wish that the shadow of Richard Ogilvie did not hang over today’s politicos who appear to be concerned not with good governance but with reelection.
Gov. O did get passed the first state income tax and was rewarded for his diligence in the face of need by being beaten by Dan Walker.
If money is needed for essential operations trim the fat and give the voters a choice between cutting services and incrasing taxes. Tell the people what it will cost them and rely on your honorable reputation. No kidding.
But no politician today is willing to lay a straight pipe if he can confound and confuse the electorate with a series of bends and elbows which tend to indicate that other people will do the paying and they will get the benefit.
In the old days, that would have worked well. Now, there are too many eyes, too many blogs.
As a magician at once remarked:
“Notice at no time does my hand leave the end of my arm.”
The Democrat Party has the conn. But do they have the courage to do an Ogilvie?
- Yellow Dog Democrat - Friday, May 4, 07 @ 10:02 am:
Man, I see alot of the Governor’s staff is busy commenting here today. Let me try to take these in order:
Carl - A tax swap plan has a better chance of passing because more school districts than ever are under financial strain, especially suburban ones. Also, remember that Senate Democrats just picked up five seats — all of those new State Senators either campaigned as supporting the swap or atleast leaning toward it.
Buck Naked - Our new State Treasurer opposes the GRT too, if that helps you.
Bill - You have absolutely no clue about HB 750. It includes tax credits for renters. It includes an increase in the earned income tax credit to offset the tax burden on working families. The property tax relief comes from the state, not the school districts.
fed up dem - again, HB 750 includes a tax credit for renters. Now are you for it?
Truthful James - Times have changed, and while Ogilvie’s ability to sell the merits of a tax increase certainly hurt his re-election chances, the truth is he lost because Dan Walker was a much better candidate.
Honestly, there isn’t much fat to be trimmed. If there was, you’d see a Republican budget proposal telling us where to make cuts. Have you seen that? No, you haven’t.
- Carl Nyberg - Friday, May 4, 07 @ 10:23 am:
I would not support the state giving my high school district more money without it being tied to higher conflict-of-interest standards and more state oversight.
Proviso Township High Schools could spend more money on education by reducing money wasted the politically connected.
If the state is going to pass a big tax increase to pass along to local school districts I want structural reforms that make it harder to squander money at the local level.
I cannot support more money for schools until the State’s Attorney, Illinois State Board of Education, Illinois AG and other authorities improve oversight to prevent money from being spent on cronyism that doesn’t support education.
- capitol view - Friday, May 4, 07 @ 10:55 am:
an accountant friend explained the low corporate tax revenues to the State situation to me - a few years ago, a court came out with the ruling that corporate income taxes are a “double taxation”. The corporation pays the income tax, and then the business owners pay again on the same corporate profits as personal income. Better for corporations to distribute their gains to their owners or stock holders, and show no real profit for the corporation itself. The court could not mandate this, but recommended it as an accounting and profits distribution practice — which many firms have chosen to do.
My prediction: the session will end with casino licenses expanded, perhaps the sale of the Lottery (”eating your seed corn”, as the Trib described it last winter), perhaps a sales tax on many services, and no income tax increases or just a much smaller Gross Receipts tax if the GRT is only applied AFTER the first $2 million to prevent companies from shutting down in late December as they see their productivity creeping towards that $2 million threshold. Band-aids are the nature of the legislative process, even if this is the best year to seriously address revenues based on election years and the next redistricting.
- Cassandra - Friday, May 4, 07 @ 11:05 am:
The CBPP makes some good points about how to improve the GRT but their summary recommendations are worth a taxpayer self-protection review.
According to their paper, a modified GRT could be coupled with a one percent income tax increase along with some other corporate tax adjustments.
So, if their proposal flies (and I have no idea if it is even being considered) most of us taxpayers will be paying an additional 1 percent in income taxes plus many of our goods and services will increase somewhat in price. In addition, since electricity rate relief is unlikely to happen, most of us will continue to pay out more for our electricity. Higher prices for stuff, higher income taxes, higher utility prices, all starting soon. Are taxpayers going to roll over for this? Maybe most of us are wealthier than we think.
And this doesn’t even address the issue of what will be done with this incredible pile of money.
Emil and others will have very large Earmarks of course. Somehow, millions and millions will be siphoned off to reward governor and legislator contributors and friends and family members…through adding lots of highly paid lifetime state patronage jobs and pouring money into the coffers of business pals via “contracts.” After the pols have taken their cut, it appears that the schools will get the bulk of the money-with or without property tax relief.
Will the schools spend it well? Unlikely, based on past experience. More likely—a dramatic inflation in teacher and school administrator salaries, lots more do-nothing education bureaucracy jobs, but no actual improvement in education quality, despite the presence of utterly unenforceable “benchmarks” proffered by teachers unions. Accelerating property taxes as education GRT monies disappear into Big Education’s maw with lightning speed.
It’s Illinois. Ever-corrupt, ever-expensive.
- Squideshi - Friday, May 4, 07 @ 1:10 pm:
The Green Party’s position on the GRT remains consistent–it is a bad idea. In my opinion, Blagojevich is trying to split education funding reform advocates between two different proposals–this and HB750. It’s a classic divide and conquer strategy.
- RMW Stanford - Friday, May 4, 07 @ 1:11 pm:
Bill,
What exactly makes the GRT more favor than the income tax? Even with a flat rate income tax, people that earn more pay more in raw numbers, but with the GRT two companies with similar revenues but with different profit margins will end up paying the same, but the company with the lower profit margin with see a higher percentage of their profits going to the state, how is that equitable?
As for the GRT versus the sales tax, the cost of any increase in the sales tax is going to be split between the consumer and business, business will lower their price some to make up for the add cost to the consumer from the sales tax. With the GRT the consumer will end up paying for part of the tax increase through higher prices and I suspect the amount of this 7 billion dollar tax increase that will be paid for by the consumer will be about the same with either the GRT or the sales, so once again how is it any less regressive?
The GRT will have a strong negative effect on low profit margin businesses and ones that rely heavily on purchasing intermediate goods and services.
How about before the state starts raising taxes, we first close up the any lop holes in the current tax code and cut back on unnecessary spending and not put into place any massive new spending programs that the state does not need.
It tells you something when a group whose members would stand to gain from a plan oppose it.
- Squideshi - Friday, May 4, 07 @ 1:12 pm:
I hate it when copy and paste doesn’t work correctly. The link in my last post should instead point here. Sorry about that.
- Cap'n Crud - Friday, May 4, 07 @ 1:23 pm:
Cass — RE: the CBPP paper and its thoughts … don’t discount the fact that they also recommend such tax-relief measures as substantially expanding the personal exemption and/or the Illinois Earned Income Tax Credit as ways of ensuring that the proposed tax increases don’t fall mostly on the heads of those low- and middle-income families already paying more than their fair share. Those are significant pieces of the puzzle, too.
- Jeff Trigg - Friday, May 4, 07 @ 2:20 pm:
HB750 DOES NOT contain a tax credit for renters. Renters will get hit with the income tax increase and won’t see a dime of property tax relief. There are small “tax credits” in HB750 ($75 whole dollars for if you make up to $17,000) but they apply to renters and non-renters equally and $75 is hardly what anyone would call rent relief. YDD you really do need to stop with the false propaganda on HB750 as it doesn’t help your cause when people learn the truth that there is no rent relief.
- Yellow Dog Democrat - Friday, May 4, 07 @ 3:40 pm:
Jeff - HB 750 contains $900 million in tax relief for renters (and any non-renters), but you’re right, those in the top 40% of household incomes would not be eligible.
However, the median household income for Illinois is $47K a year, so I’m betting the cut-off is somewhere between $55K and $60K.
But yes, anyone renting an apartment in Chicago’s Gold Coast for $2000-$2500 a month probably won’t be getting any direct tax relief. However, the 20-25% cut in property taxes means they might actually be able to afford to BUY in the Gold Coast now, so I doubt they’ll be whining much.
- Yellow Dog Democrat - Friday, May 4, 07 @ 3:42 pm:
Carl — You really need to run for the school board, instead of expecting everybody else to hold up more money for their school districts just because you guys in Proviso Township can’t get your act together.
- Jeff Trigg - Friday, May 4, 07 @ 4:57 pm:
YDD, It isn’t rent relief no matter how you try to explain it.
Two people, both have the exact same income and life situation, we’ll say they made $25,000. One rents and the other owns. Do they get the exact same “Family Tax Credit”? Yes they do, but the owner gets the supposed property tax relief and the renter does not. THERE IS NO RENT RELIEF IN HB750!
- some perspective, please - Friday, May 4, 07 @ 5:06 pm:
The corporate income tax is up because corporations are recording record profits — but they’re still paying squat: $1.5 billion in state Illinois income taxes versus $8.5 billion from individuals. That’s just wrong.
- Bill - Friday, May 4, 07 @ 5:07 pm:
YDD,
Actually, I have a quite thorough understanding of 750. While it does increase school funding it does not address health care or the pension deficit. It taxes all retirement income for certain retirees. It rebates property taxes so that the wealthy get a much bigger break than the average working stiff. ask someone downstate if their property taxes are a serious problem compared to their income tax. It taxes services while allowing loopholes so that lawywers, lobbyists, doctors, developers,big corporations, etc., can avoid paying corporate income tax which will almost double for small businesses. I’ll take the revenue increase if it is all that we can get but you are not fooling anyone with the “swap” scam. Forget the swap and be transparent about the real cost to the taxpayers.
The grt would be a much better deal for the average person in Illinois. Raising income tax by 67% and taxing all services truly is the most draconian tax increase in Illinois history. Be honest with our citizens.
- Rich Miller - Friday, May 4, 07 @ 5:16 pm:
OK, everybody. It’s the weekend. Time for a break.
- Cassandra - Saturday, May 5, 07 @ 2:03 am:
Has the retiree community figured out yet that their taxes are going up if 750 is implemented?
Another example of how not paying attention to state and local government can cost ya. We’ll be hearing those starving retiree stories….after
the tax is imposed.
Aren’t there any retiree associations other than AARP, which seems to be ignoring 750. Maybe they are right and it doesn’t have a prayer. But to be on the safe side, maybe those retiree groups should start reading the newspapers.
- steve schnorf - Saturday, May 5, 07 @ 2:22 am:
Bill,
I’m not sure you’re right. I pay next to nothing in state income tax (mainly because most of my income is retirement income and therefore not taxed by Illinois). I pay $10,000 a year in property tax on my home.
I and people like me ought to pay more in state income tax. I can’t complain too much about my property tax, I just wish I could sell my house for what the assessor says it’s worth (or anything close).
The business income tax question bothers me. I kind of believe that maybe there shouldn’t be an income tax on business, but since there is one, it really bothers me that small companies pay it and multi-billion dollar companies escape it, sometimes for years at a time. The idea of a GRT as sort of an alternative minimum tax on business may make good sense.
But, at the end, it comes down to what is doable in the world we live in. Though I think expanded access to health care coverage is a very good idea for a variety of reasons, it’s hard for me to avoid saying that pension debt, structural imbalance, and education funding reform aren’t higher priorities in this state at this time.