While the corporate income tax in Illinois will rise to 7% on a temporary basis, companies that do business in the state of Illinois are taxed on profits from the location of their customers – not the physical location of the business. Moving across the state border will not affect a business’s Illinois income tax bill. For example:
· The only way for the company to avoid paying Illinois corporate tax is for the company to cease selling their product to Illinoisans; relocating out of Illinois will have no effect on the amount of money paid by a company to the State of Illinois.
· A company that has $1 million in profits from $10 million in sales – $4 million of which was generated by sales in Illinois – will pay the same amount in income taxes ($28,000 under the 7% rate) whether they are located in Illinois, Wisconsin, Indiana, or even Montana. [Emphasis added.]
So much for my secret plan to re-incorporate in South Beach.
* I’ve been perusing the online letters to the editor sections of Illinois newspapers lately so you don’t have to. It’s never a fun thing to do. The amount of misinformation and weirdness that newspapers allow into their publications is truly beyond the pale. Here’s one theme that I see everywhere these days…
Dear Governor Quinn:
When you get a chance, you might want to call a guy named Chris Christie in New Jersey. He has some interesting ideas on actually cutting taxes and reducing spending - the key words being cutting and reducing
There’s been a huge amount of hype about Gov. Christie, but what has he really done? New Jersey’s deficit for the current fiscal year was projected at $10.7 billion last spring. The state’s deficit for next fiscal year is now projected at around $10.5 billion. At that rate, his budget will be balanced in about 53 years.
Either the bottom has completely fallen out in New Jersey, or Christie didn’t actually cut much at all, or some of both. He claims to have balanced the budget, but how could he do that and still be facing a $10.5 billion deficit? Color me skeptical.
And after skipping last year’s $3 billion pension payment, Christie plans to skip $2.5 billion of the state’s payment next fiscal year.
In other words, so far he’s been all talk. Yes, he has “ideas,” but they haven’t actually made a dent in his real life deficit.
I live in Indiana, the state to the east of Illinois. I’m sorry about the financial mess your politicians left you in, but not so sorry for the outcome.
You see, in Indiana we elect politicians who realize we don’t want them to spend us broke, or they don’t get re-elected. It has worked well lately, because we’re in the black, and our taxes are lower then yours.
Actually, no. Indiana increased taxes in 2008. That’s a big reason why they have been able to weather the storm. And some of their counties levy as much as a 3 percent corporate income tax. It ain’t all roses over there. Their unemployment rate is higher than ours as well. So much for the miracle.
“We were wondering how a sad sack like Pat Quinn could get elected governor. We found some of the answer in the $250 million hand off he gave to the Black Caucus. He’s taking the money out of you and your friends’ pockets to repay them.”
I have a suggestion for our esteemed leaders in Springfield/Chicago regarding the income tax increase in Illinois. Another way to raise money for the state is to reduce welfare benefits by 2 percent. Fair is fair.
That $250 million was for education funding, not for black people, but whatever. And the state’s Department of Human Services Budget was cut by over 14 percent this fiscal year alone.
* And, of course, there were the illiterate screeds about Chicago…
All this could be solved with one simple solution: Let Chicago succeed from Illinois. Chicago is a cesspool of spending abuse and corruption that threatens to take down the entire state.
In other words, there was nothing particularly extraordinary about the Cook County vote last year except that Republicans completely failed to do whatever it took to make inroads during their greatest year since 1994. Back then, their gubernatorial candidate (Jim Edgar) actually won the county.
Wisconsin Gov. Scott Walker says he’s looking for ideas for a wager with Illinois Gov. Pat Quinn on the NFC Championship Game [between the Bears and the Packers]. […]
Walker wants to broker a bet with Quinn on the outcome. He says he’s thinking about offering beer, sausage or cheese, but would like get more creative. He’s looking for suggestions from the public through his Twitter account.
* Of all the dumb things to do, this ranks right up there…
During her final days in office, former state Rep. Careen Gordon scored a lucrative state job after casting an important vote that helped pass Gov. Quinn’s controversial 67 percent income tax increase.
Gordon (D-Morris) and a spokeswoman for the governor said there wasn’t any deal to trade Gordon’s vote for the $85,886-a-year seat on the Illinois Prisoner Review Board.
“There was no quid pro quo,” Quinn spokeswoman Annie Thompson said Saturday. “Bottom line, she was appointed because of her extensive background in criminal justice. . . . She was just the ideal candidate.” […]
“There was no deal. That’s untrue,” she said. “My background is a perfect match for someone on the Prisoner Review Board. I’m done talking about it. I’m done being called a liar.”
Gordon said she and Quinn discussed the tax increase when she approached him about the appointment in November, but he didn’t ask for her vote.
This appointment could have, and should have, waited. I, for one, don’t think there was a direct, absolute quid pro quo here. You can get around that pretty easily. In politics, some things are just left unsaid. And the way the “Honest Services Fraud” law has been diluted by the Supreme Court, you’d have to prove a direct bribe to bring any charges, so that’s not gonna happen.
But giving Gordon a job this soon certainly makes it look like something fishy is going on. Stupid, stupid move, governor. Truly.
Lame ducks would be dead ducks, under a Constitutional amendment some Downstate Republicans want Illinois voters to decide.
The income tax hike which passed the legislature in the final hours of the 96th General Assembly — Tuesday night in the House and in the wee hours Wednesday in the Senate — got the minimum votes needed to pass: sixty in the House and thirty in the Senate. Of those voting Yes, twelve representatives and one senator were not coming back when the 97th General Assembly was sworn in at midday Wednesday.
Representatives led by Chapin Rose (R-Mahomet) want to change that. Rose has filed a Constitutional amendment which, if the legislature and governor approve, would allow voters to decide that the outgoing General Assembly could not convene between an election and the inauguration of the new one.
The proposal, discussed at news conferences in Champaign and Decatur Friday, comes in light of not just the tax increase, but also the death penalty repeal and civil unions, also approved during the post-election veto session or the January lame duck session.
* To the Wayback Machine, Sherman! Decatur Herald & Review, January 13, 1997…
Democrats took control of the Illinois House last week as a result of the swearing-in of legislators elected in November.
Republicans were unable to give up control of state government without a final show of power.
Their actions included redistricting the Illinois Supreme Court to give the 4-3 Democratic body a 4-3 Republican split, ending straight-party voting, and imposing enormous new paperwork burdens on the Cook County assessor.
It was the straight-party campaign, run by Cook County Assessor Tom Hynes, that resulted in Democrats winning back the House. “They were obviously acts of retribution,'’ said state Rep. Michael J. Madigan, D-Chicago, who became speaker the day after the Republican efforts.
State Rep. Lee A. Daniels, R-Elmhurst, who relinquished the speakership to Madigan, was fairly candid in his last hours of power. It could, Daniels acknowledged, be labeled “a partisan last day, obviously with some justification.'’
There is little new under the Statehouse dome.
* Statehouse roundup…
* Senate lawyer: Monken out as Illinois State Police director
* New bill would impose pension reforms on existing participants [fixed link]
* Unpaid rent, bills add up as legislator, CPS feud
* Tax credit is incentive to hire temporary workers
* Gun pointed at Rep. Acevedo: A van pulled up to him and an occupant pointed a gun at him, but did not fire it. Acevedo loudly announced his office and the van “took off,’’ police said.
* Illinois death penalty decision leaves uncertainty
* This is probably something that the Democrats neglected to properly consider when they raised taxes…
Annually, the increase will equate to whole paychecks they’ll be handing over to the state.
Two percent of one’s income is, indeed, about equal to a week’s wages. Gov. Pat Quinn and the Democrats better worry that nobody else picks up on this theme. It could be extremely powerful. And quite dangerous. Nevermind that the total state income tax burden prior to this was only about one and a half weeks’ worth of wages. This new one week of pay taken away and given to the brain trust running our ever-so-competent government is something that people can very easily understand.
* But in the meantime, we’ll just have to endure false propaganda like this from the Heartland Institute…
Land of Lincoln? Land of Larceny. […]
The legislation does include a spending “cap,” but it allows spending to grow 18 percent from fiscal 2011 levels over the next four years – and they’ll likely ignore the cap, just as they’ve ignored the state’s balanced budget requirement and a 1995 law requiring proper funding of pensions.
The reason spending appears to be growing from this fiscal year is because we currently can’t pay our bills.
* And the Tribune recklessly printed this Cal Thomas screed, which starts with Illinois as an example and then goes national…
Suppose there was a groundswell of taxpayers who announced they will no longer pay for government and, in fact, will start reducing payments to government if politicians won’t significantly cut spending? That would get their attention.
There aren’t enough prisons to house thousands, perhaps millions, of taxpayers who cry “enough” and demand that Washington live within its means. It’s time to starve the beast. If Dracula doesn’t get blood, he dies. If Washington can’t suck more money out of us and must stop borrowing, it will be forced to cut back, like so many Americans have done in this recession.
So much for toning down the rhetoric.
* Northwest Herald executive editor Chris Krug listed those who voted for Pat Quinn, including…
Idiots, buffoons and the terminally stupid.
Sheesh.
* But James Warren includes a wake-up call for the warring Midwestern states over Illinois’ new tax hike…
But a cautionary note came from [Rich Neimand, a Washington media and political strategist]: Economic health involves more than competitive tax rates and cheap land; it involves thinking far beyond Racine, Prairie du Chien, Carbondale and Elgin.
“Both governors should note that the weather is a lot sunnier in Mexico, the local officials infinitely more generous, the environmental regulations more lax and the gang violence probably no worse than Chicago or Milwaukee,” Mr. Neimand said.
So ridicule Illinoisans picnicking in the Dells, Badgers. But realize that it’s folks around the world who are really eating your lunch, Mr. Walker, and ours.
What were the alternatives to a tax hike? The state could have kept limping along as it is, with bills piling up and getting paid later and later, if ever. That means the vendors and local service organizations that do business with the state would have paid the price for their association with Illinois. Some people might call that unfair.
There is the stubborn belief that cuts alone - just the waste, mind you, not the good stuff - will solve the problem, despite repeated assurances from all sorts of budget experts that those kinds of cuts are a fantasy, that the numbers involved are just too big. You’re talking about wholesale elimination of about half of Illinois government.
Of course, no one likes paying higher taxes. In the end, though, there were no other reasonable alternatives.
He does not necessarily buy into the assumption by many that the tax hike, which raises individual income taxes from 3 percent to 5 percent and the corporate rate from 4.8 percent to 7 percent, will not be temporary. The tax is scheduled to drop to 3.75 percent in 2015.
Thompson signed a law that temporarily increased the tax from 2.5 percent to 3 percent. That increase took effect on Jan. 1, 1983, and went back to 2.5 percent on June 30, 1984.
“I went through and the people of Illinois went through in 1982-1983 the second-worst recession in American history,” Thompson said. “(The tax increase) wasn’t renewed, and so it can be done.”
The key to not continuing this year’s tax increase, according to Thompson, will be budget cuts and a better economy.
*** UPDATE *** Not that I usually care what they think, but I forgot to include this editorial from the New York Times…
For years, Illinois, like so many states, pretended that it had not fallen off a budgetary cliff. It was spending too much and taking in too little revenue, but every year it would kick its problems into the next. Unable to pay its bills, it finally accepted reality last week and raised taxes on incomes and businesses — a first step toward getting its house in order.
The action was immediately ridiculed by several governors around the nation who are still pretending that they can cut their way out of the enormous shortfalls they face, without raising taxes. Wisconsin and Indiana predicted a windfall of angry corporations and residents would head their way from Illinois. Even Gov. Chris Christie, the New Jersey Republican, vowed to fly to Illinois to invite businesses there to defect to his state.
That makes great political theater. But businesses and voters in Illinois, and around the country, should take a closer look at the facts and figures, including their own. […]
With federal stimulus aid ending, states are in for their worst year in generations, and they cannot get out of it by either cutting or taxing alone. Illinois is figuring that out, finally. Too many other states are still in denial.
* Don’t follow Illinois’ lead: “The idea of competing on state tax rates is … hopelessly out of date,” said Ed Morrison, economic policy adviser for the Purdue Center for Regional Development.
* Tax hikes will prove to be an onerous burden, local business people say: To make matters worse, Poe doesn’t know how she’ll be able to afford the additional taxes, given that the state owes her business money that hasn’t been paid. She has no idea what happened to some of the expenses for which she asked for reimbursement and has been resubmitting claims to no avail. “Many of the bills are eight months out that need to be paid,” Poe said. “We just got payment recently for something in 2009. I have no idea if they just went into a black hole because we’re not getting payment on them.”
* R&R courtesy of good government: It was Illinois Sen. Paul Douglas who led the long battle a half-century ago to set aside the precious [Indiana] dunescapes. Business interests put up a stiff fight, but in the end a compromise set aside land for steel mills — and jobs — while preserving much of the rest.
* My weekly syndicated newspaper column takes a look at the recent tax hike…
Whether they admitted it or not, a large majority of Statehouse denizens was relieved last week when the General Assembly approved the income tax hike.
Ironically enough, Republicans may have been the happiest. The state’s horrific structural deficit was finally addressed, which is good news all around. And since they didn’t put any votes on the tax hike bill, the Republicans now get to use it as a wicked political hammer against the Democrats.
Their silent, but tacit consent came late in the evening when several Republicans, including the Senate GOP Leader, joined the Senate Democrats to support a borrowing plan to make the state’s pension payments this year. The Republicans wouldn’t put votes on the bill last spring until they got some budget reforms. But now that the $3.7 billion borrowing plan was paid for with a tax hike, they explained they could now go along.
House Republicans offered up their own version of tacit acceptance shortly before the tax hike was approved in their chamber. They took what amounted to a rare “caucus position” against putting any votes on Gov. Pat Quinn’s $14 billion bond program to pay off old debts, but afterward privately said they would likely agree to the plan down the road, as soon as they could extract some concessions from Democrats. The tax hike proposal, of course, includes designated cash to pay off those $14 billion in bonds.
And while there was relief and even elation in the building after the tax hike finally passed, the tax hike is definitely causing an uproar amongst the general populace.
It is, in a way, a bit like the federal healthcare legislation. Like President Obama, Gov. Quinn would’ve been badly hobbled at the Statehouse if his tax hike had failed (undoubtedly even worse, since no new revenues would’ve resulted in catastrophic budget cuts).
But also like Obama, Quinn and legislative Democrats will pay a steep political price for passing a very big plan without a clear popular mandate. Again, it will likely be worse for Illinois Democrats because most people tell pollsters they actually like individual pieces of that federal healthcare law. Not many are gonna love any part of this tax hike.
History may eventually look kindly on what the Democrats did last week. But the foreseeable future is going to be absolutely brutal.
There has also been much consternation about the “temporary” nature of this tax hike. For some reason or another, Illinois memories only go back to 1989, when the last “temporary” income tax increase was approved. That one never went away, goes the reasoning, and neither will this one.
That previous temporary tax hike was made permanent after the 1990 election. Republican Jim Edgar campaigned for governor on a pledge to make it permanent. Democrat Neil Hartigan said he would kill off the income tax hike. Edgar won and he got what he, and the voters, wanted.
But income taxes were also raised temporarily in 1983, during a deep, dark recession. That tax increase was even more controversial than this one because it came after an election when Republican Governor Jim Thompson had promised not to raise the income tax at all. It was allowed to expire on its own.
There is no doubt that the planned 2015 expiration of most of this tax hike will be the prime focus of the 2014 governor’s race. It’s probably a good bet that the permanency of the increase will likely be decided by whoever wins the next governor’s race. Just like it was in 1990.
Even so, voters last year thought they were electing a guy who backed just a one-point tax hike. Gov. Quinn said last week that conversations over the past couple of months with financial institutions that lend the state money led him to break his campaign promise on taxes. The state’s ability to borrow was about to be eclipsed, Quinn said.
Last summer, Quinn promised not to sign any tax hike above one percentage point. He made that pledge after his top budget aides were caught on video telling an out-of-state financial reporter that a 2 percentage point increase would likely be passed in January to deal with the structural deficit. It’s hardly believable, therefore, that the governor came to this realization just since the election.
If Quinn runs again, he’ll probably have to put his house up as collateral against his new promises.
* Debate strategy for mayoral rivals: Go after Rahm Emanuel: Braun replied, “No. Tampons. Let’s talk about Tampons. I don’t go to the NRA. This isn’t about guns. This is about Tampons and how women would feel about somebody who said that in the workplace.”
* Braun, Walls Spar at Mayoral Forum: Braun: “You have run for mayor, you have run for senate … No body knows what you’re doing. Let’s get some honesty.” Walls: “State the facts, state the facts. You got ran out of office.”
* Black wards adding more voters, while Hispanic wards lag behind: In just 10 weeks since the November midterm elections, every ward in the city showed a jump in the number of registered voters, indicating a high level of interest in the upcoming mayoral contest.
* Blagojevich trial hangs over Rahm’s campaign: Another mayoral candidate, Gery Chico, had his own Blagojevich issue. The Sun-Times has reported that Chico hosted a fund-raiser for Blagojevich the night before he was arrested. Chico told the Sun-Times he is a Democrat so it is not surprising he would host a fund-raiser for the state’s Democratic governor.
* Illinois disciplinary flaws highlighted in doctor’s sex case - State missed convicted physician’s admission of at least 3 sexual relationships with patients
* 13 fewer deputies on the job after layoffs: On the day 13 St. Clair County Sheriff’s Department deputies were laid off because of a budget impasse, a lawyer for the Fraternal Order of Police said no negotiations are scheduled to try to get them back on the beat.
* Springfield inexpensive place to live, studies show: Using 100 as the national average, Springfield rated an 86. The figures for other Illinois communities were: Chicago, 113; Kankakee, 100; Peoria, 100; Champaign-Urban, 98; Bloomington-Normal, 97; Decatur, 93; Rockford, 91; Danville, 89; and East St. Louis area, 87. According to local economic development groups and the Greater Springfield Chamber of Commerce, the relatively low cost of electricity from City, Water Light and Power is a major factor in the Springfield figure.
* Fix is in for Capitol offices: Senate Republicans are flooded out of their third-floor Capitol offices for the next two weeks, even as senators and staff are gearing up for the start of a new session. About two dozen GOP staff members will have to be relocated to other areas of the Capitol complex while workers dry out offices soaked by a sprinkler system pipe that broke last week.
* Chef creates ‘invasivore‘ dinner, but experts say that’s not the way to halt finned intruders
* Remember last year when ComEd offered the cash-strapped state $500 million in exchange for guaranteed future profits? Well, the company is back again, but this time there’s no $500 million offer…
Commonwealth Edison Co. plans a big legislative push this spring that would allow electric and natural-gas utilities to hike delivery rates each year and would sharply curtail state utility regulators’ power to control the price for power and heat.
The measure, modeled in part on a controversial rate-freeze bill ComEd tried to move through the General Assembly last May, would give the state’s utilities far more certainty about recouping infrastructure investments in a timely way. But consumer advocates warn it would increase utility bills.
In a major change from the previous legislation, the new version would involve all of the state’s gas and power utilities rather than just Chicago-based ComEd. That means ComEd can enlist industry allies and add clout to its lobbying effort.
Under the proposal, utilities that agree to invest in their systems at a specific level would be allowed to automatically change their rates each year based on their costs. That would enable them to avoid the Illinois Commerce Commission’s review process, which often stretches to 11 months. The ICC instead would be given a narrower, after-the-fact review to ensure the costs aren’t egregious. […]
“To the extent the bill looks like the one they introduced last session, that’s not good for consumers,” says David Kolata, executive director of the consumer watchdog group Citizens Utility Board. “It would reduce ComEd’s risk and put it on the backs of consumers. We believe consumers would be stuck with higher rates than they would otherwise.”
* And they’ve got their ducks lined up. From a ComEd press release…
“This is the right time to decide the right way to modernize a major part of Illinois’ infrastructure,” said Kevin A. McCarthy, Illinois State Rep., 37th District. “Similar to how we facilitated the rapid technology boom in the telecom industry and brought countless advantages to customers, we can manage infrastructure investment and keep necessary consumer protections in place while unleashing the full resources needed to make Illinois an economic hub. This would be a win for everyone, and it is the kind of innovative public policy action our state needs right now.”
“ComEd’s proposal to ensure long-term investment in the electric grid would provide thousands of labor jobs for our members in communities throughout northern Illinois,” said Dean Apple, president, I.B.E.W., Local 15. “Many parts of the grid are aging and in need of replacement to ensure system reliability. This plan would include much-needed programmatic upgrade work and minimize the need for emergent repair work.”
* I heard this rumor the other day and ran it down pretty darned thoroughly over a couple of days. As far as I can tell, it’s bunk…
Tom Cross said he’s hearing Quinn made a deal to get votes for the big tax hike in exchange for promising to sign the bill abolishing he death penalty.
“You know, they were having a tough time getting the votes in the House and the Senate, so I’m told, and in exchange for a number of folks voting in exchange a number of folks voting who were in support of the death penalty abolition, he said he would sign it,” Cross said.
In response, the governor’s office says, “Baseless political attacks do a great disservice to the elected members of the General Assembly who had the courage to take the action necessary to bring economic recovery and budget reform to Illinois.”
First of all, re-read that Cross quote. It makes no sense.
I first heard the rumor from opponents of the death penalty abolition bill. Republicans were also spreading it. At the time, the rumor was that some abolition proponents were threatening to withhold their votes from the tax hike unless Quinn signed the death penalty bill. Some had heard the rumor, but nobody - and I do mean nobody - involved with the tax hike (or the abolition bill) were involved in such a plot that I could discern.
This is just irresponsible on Cross’ part. He’s passing along rail gossip to undermine both bills with this story, and, of course, WLS trumpets whatever nonsense that fits their meme.
* And I’m sure the Republicans, including the four Senate Republicans, who voted for the abolition bill are pleased as punch with his rumor mongering…
The four Republican senators who switched ideological sides were more intellectually honest. They included Dan Duffy of Lake Barrington, who was a small-business owner and political neophyte when he won an open 26th District seat in 2008.
Mr. Duffy is an ultra-conservative and, when tracked down, he was fuming about the big tax increase that also passed at the end of the legislative session. He calls it “the nuclear bomb of jobs bills,” adding, “It will destroy all jobs in Illinois.”
He said he was pro-death penalty until he started researching the issue recently and morphed into a late co-sponsor of the legislation to bar it. […]
Another Republican vote came from Senator Tom Johnson, both a former prosecutor and House member picked by the Republican Party to fill the seat of Randy Hultgren, who was a west suburban senator and is now a new congressman. Mr. Johnson has served on the Illinois Prisoner Review Board since 2004 and was a proponent of the death penalty.
But over time, he said, he discerned a system whose application made it “impossible to rationally use as an effective tool,” especially with state’s attorneys in 102 counties making separate decisions on which defendants were “death eligible.”
* Roundup…
* Judge denies Coleman’s request to delay murder trial: Judge Milton Wharton today denied a defense motion to delay the Feb. 15 start of Chris Coleman’s murder trial until Gov. Pat Quinn decides whether to sign a bill to abolish the death penalty.
* Will Quinn end Illinois’ death penalty? We look at his past comments.
* House lawmakers roast blunt wraps ban: Rep. Jim Sacia, a Republican from Pecatonica, said the legislation is part of a dispute between Chicago-based Republic Tobacco and Kentucky-based National Tobacco Co.
* The Statehouse press room was evacuated today. A water pipe may have burst or a fire sprinkler turned itself on, but whatever happened, the place is flooded. The office that I share with the Daily Herald wasn’t touched, but others got drenched and there’s now a strong moldy smell permeating the whole place, which will be empty until Tuesday at the earliest.
* The Question: Analogies?
We had so much fun with yesterday’s QOTD that I couldn’t resist doing it again today.
* Senate President John Cullerton told Fox Chicago this week that he’d be willing to lower the new, higher corporate income tax rate rate by closing some tax loopholes…
Cullerton said if he can replace the revenue some other way, he would be willing to move immediately to cut the new income tax rate on business, presumably to a level even with Indiana’s 8.5 percent or even lower.
Cullerton said if certain tax “loopholes” were closed, the overall rate could be reduced.
“We could easily do that. We just need cooperation from Republicans,” Cullerton said. “We would actually be shifting taxes, not raising them. We won’t have to raise taxes any more.”
That could open up a whole new can of worms, and I’m not sure the Republicans would cooperate. Those “loopholes” have been in place a very long time and they’re mostly devised to allow the bigger companies avoid paying the full freight.
The reason Cullerton said he’d need GOP cooperation is that it now requires a three-fifths vote to advance a bill that changes the tax hike law.
The Indiana Economic Development Corporation is already targeting companies that have publicly stated they are looking to leave Illinois. The revelation was included in Governor Mitch Daniels’ budget presentation to the State Budget Committee. Lawmakers in Illinois approved massive tax hikes this week, and Governor Pat Quinn signed the increases into law Thursday. […]
A bill to decrease Indiana’s corporate income tax rate is being filed at the Statehouse. State Senator Brandt Hershman (R-7) says it is the result of several hearings into the issue, not a sudden reaction to developments in Illinois.
Republican lawmakers have nixed GOP Gov. Scott Walker’s plan to give tax breaks to small businesses and replaced it with a measure that would cut taxes for businesses of any size that create jobs.
Rep. Robin Vos (R-Rochester), co-chairman of the Joint Finance Committee, said Wednesday he planned to make changes to Walker’s bill so that it would provide businesses a $1,000 tax deduction for each job they create. Walker said Wednesday he could support the idea.
Illinois has one of those as well and it’s bigger, $2,500 vs. Wisconsin’s $1,000. Illinois’ applies to companies with 50 or fewer employees, but that’s 95 percent of Illinois businesses. Illinois’ credit expires in June.
As for the state divide, Mr. Walker is happy to talk about it beyond business and the economy. “I was kidding the Chicago media guys, saying ‘Have me back on when the Packers are ready to beat the Bears, and I’ll talk some smackdown.’”
Yeah. OK. That’ll help attract lots of Illinoisans.
But New Jersey? Trenton is about 900 miles from Springfield, Ill. Jersey City is a 13-hour drive from Chicago. None of that deterred Gov. Chris Christie, a New Jersey Republican who spent much of last fall stumping around the country, from speaking up even before Gov. Patrick J. Quinn of Illinois, a Democrat, had signed the legislation.
“I’m going to Illinois,” Mr. Christie said in an interview on Wednesday. “I mean soon. I’m going to Illinois, personally, and going to start talking to businesses in Illinois and get them to come to New Jersey.” […]
Illinois raised its personal income tax rate to 5 percent from 3 percent, and its business income taxes to 9.5 percent from 7.3 percent. Despite the eye-catching increases in Illinois, New Jersey may have a tough time making the case that it offers businesses a friendlier environment.
New Jersey’s personal income tax — 6.37 percent for married couples earning more than $150,000 a year, and 8.97 percent for those making more than $500,000 — is among the nation’s highest. The state’s business income tax is 9 percent for businesses with income over $100,000, so Illinois’ is now somewhat higher, but Illinois has lower sales and property taxes.
Keep in mind that many small businesses and corporate execs are more concerned with the personal income tax than the corporate tax. It’s no contest there, especially considering that state’s high property taxes. And things are not going so great there…
After cutting spending for schools by about $1 billion last year, the Christie administration today was ordered by the New Jersey Supreme Court to prove the reduced funding can sufficiently provide a “thorough and efficient education” to the nearly 1.4 million children in the state’s classrooms.
If nervous investors were looking for another excuse to stay out of the battered municipal bond market, they got it from New Jersey Gov. Chris Christie on Thursday.
Speaking at a town hall meeting, the Republican governor warned that healthcare expenses for public workers “will bankrupt” the state if those costs aren’t reined in.
Christie may not have meant it to be taken literally, but a governor probably shouldn’t be dropping the B-word in a muni market that is already so badly spooked by fears over state and local government budget woes.
Prices of muni bonds fell broadly for a fourth straight session Thursday, driving yields on some securities to new two-year highs.
Oops.
* Related…
* N.J. cuts bond sale after Gov. utters ‘bankrupt’ - New Jersey Gov. Chris Christie said Tuesday that health care costs “will bankrupt” the state; minutes later, the state Economic Development Authority slashed a bond offering by about half.
* Minnesota to Wisconsin: Pay up: Wisconsin is overdue in paying Minnesota $58 million — and Minnesota wants the money now.
With all the hyperventilating news coverage of the state’s new 2 percentage point income tax increase, almost nobody has reported what Gov. Quinn actually said Wednesday when asked why he broke his campaign promise not to raise taxes by more than a single percentage point.
“As the last couple months have ensued, it was pretty clear from talking to major entities that lent money to the state of Illinois that the opportunity to borrow was fast eclipsing, and we had to do some very serious things on an emergency and temporary basis in order to get our fiscal house in order. You have to do what’s necessary at this moment, and that’s what I did.”
In other words, the big Wall Street bond houses laid down the law: Your problem is so horrible that you’d better fix your deficit now or forget about borrowing money at anything near a reasonable rate ever again.
When the bond guys say “Jump!” states usually ask “How high?”
Last spring, Illinois was threatened with a huge reduction in its credit rating if it didn’t immediately do something about its underfunded pension system. Within days, the General Assembly passed a sweeping pension reform bill.
But the bond houses never stopped making demands. They never do. “They always want you to raise more revenues,” said a onetime aide to former Gov. Jim Edgar, who said that Edgar always chafed at their insistent ways.
Illinois has built up so much debt, however, that we’re more vulnerable to the demands of Wall Street than most states. And so last summer, when the New York drumbeat increased in intensity, it seemed pretty obvious what was going to happen.
Back then, Quinn’s budget director, David Vaught, told Bloomberg News reporters that he expected the governor and the Legislature would pass a tax increase come January.
“We think it’s going to be substantial,” Vaught said. Asked to define “substantial,” Vaught pointed out that Quinn had testified to a House committee in favor of a 2 percentage point increase.
John Sinsheimer, Quinn’s director of capital markets, then piped up with a story about when he told overseas investors that Illinois could balance its budget with a 2 percentage point income tax increase.
“They looked at us and said, ‘Only a 2 percent increase?’ They were amazed by that.”
It doesn’t look so small now that the thing is the law of the land.
The truth is that this problem has been building for more than 30 years. Governors and legislatures have been skipping pension payments, pulling off one-time revenue gimmicks and increasing spending on things people demand, such as education and health care, without caring that Illinois didn’t have enough sustainable revenues to pay the piper.
Not enough was done when state revenues collapsed after the 9/11 attack, and nothing was done while the national economy collapsed in 2008.
The budget cuts made over the past couple of years haven’t stopped the flood of red ink because the problem was just too big.
Those of us who follow this stuff closely knew Quinn’s campaign promise last year to limit a tax increase to a single point was way too small to balance the budget. Not that his Republican opponent’s fish story was any better. Bill Brady promised to reduce corporate taxes and cut the budget by just 10 percent. One way or another, New York would’ve knocked all those ideas off the track because they wouldn’t have worked.
Were there alternatives to this tax increase? Yes. But Illinois didn’t elect an anti-government, slash-and-burn governor in November. We’re stuck with what we’ve got.
With his coveted income tax hike in hand, Gov. Pat Quinn quickly deployed his financial troops to New York in hopes of convincing rating agencies that Illinois bonds are now a safer haven for investors.
John Sinsheimer, director of capital markets for Quinn’s budget office, was slated to spend Thursday meeting with the nation’s Big Three ratings agencies: Moody’s, Fitch and Standard & Poors.
The object: Convince analysts that the nearly $7 billion that will be raised through the higher taxes is a major step in the right direction when it comes to shoring up the state’s still-shaky finances.
If the agencies decide the tax hike has set Illinois on a better financial path, they could upgrade the state’s ratings, which could give the state better interest rates when it borrows money.
Municipal bond investors had been steadily losing confidence in Illinois bonds in recent weeks as Wednesday’s deadline for the General Assembly to approve a fiscal bill grew nearer and a plan to cover the state’s pension obligations remained undefined. But after Tuesday’s vote, the bond market reflected a change in sentiment.
For example, a 2003-issued Illinois municipal bond with a 30-year maturity and coupon of 5.1 percent rose 1.5 percent in price on the secondary market between Tuesday and Wednesday after the income tax was approved, according to a bond trader at a Chicago-based investment management firm. The yield on this bond decreased 17 basis points one day after the tax increase was passed. The bond price rose to 80.83 cents on the dollar Thursday from a meager 76 cents two days before.
The state’s credit risk factors into bond prices, bond traders say. When bond prices rise, it reflects that traders believe risk has decreased. Ultimately this is good news for the state’s finances, indicating Illinois can offer new bonds with lower interest rates to entice investors.
* Related…
* Quinn signs tax, Democrats point to spending caps
