*** UPDATE *** Greg Hinz has more bad news…
According to Tom Johnson at the Taxpayers’ Federation of Illinois, those [tax breaks] easily would cost the state treasury $400 million or so a year when fully implemented.
Mr. Johnson’s numbers in part come from an analysis of the bill prepared by House Democratic staff, as first reported by Rich Miller at Capital Fax.
Other knowledgeable sources say the ultimate cost is hundreds of millions of dollars a year higher. [Emphasis added]
Sheesh.
[ *** End Of Update *** ]
* I absolutely hate it when this happens, but I made a mistake in this morning’s Capitol Fax. When calculating the out-year cost of the tax cut package, I missed some crucial language in a House Democratic analysis…
Bonus Depreciation: Decouple from the federal government on the latest bonus depreciation for the current tax year and beyond. This is expected to generate $571 million in FY 2012… The value of this decoupling is reduced to $354 million in FY 2013 and continues to decline until the earlier state benefit is recovered by taxpayers.
So, my calculation that the deficit created by this plan next fiscal year is about $110 million (due to phase-ins of tax cuts and other tax break increases) is way off. The hit to next fiscal year’s budget will actually be about $317 million. And then the hole gets bigger year after year.
Wow.
Just… wow.
* Meanwhile, CME Group’s Terry Duffy plans to spend the week in Springfield…
“It will be an interesting week,” said Duffy. “I am going to be down in Springfield, obviously, all week. Hopefully the legislature understands the value that the CME Group brings not only to Chicago but to the state of Illinois and the rest of the country.” […]
CME’s Duffy will watch what happens and says the General Assembly’s action or lack of same will trigger a decision by his board.
“It will only trigger something that we’ve been looking at all along, which is what’s in the best interest of our shareholders∧ I’ve said that from day one,” said Duffy.
Several states, including Indiana, reportedly have offered CME Group tax incentives to relocate.
Duffy says his company has complained about taxes for many years but apparently the corporate tax increase earlier this year now makes it cost effective to move elsewhere for a better deal.
* And so will opponents of the Sears tax break…
Community Unit School District 300 will be back in Springfield today when the Illinois General Assembly’s veto session resumes, this time “in the red” — literally, wearing red T-shirts — as the district’s budget will be “if we’re not successful this week.” […]
The Carpentersville-area school district for months has opposed an amendment to another bill — Senate Bill 540 — that would extend tax breaks another 15 years for the economic development area surrounding Sears corporate headquarters in Hoffman Estates. […]
District 300 said in a written statement Monday evening it was pleased the amendment to Senate Bill 397 would penalize Sears if it left Illinois before 2018.
But district officials plan to push lawmakers to rewrite this legislation, too. It does not require an audit or joint review committee over the EDA. It also would allow the village of Hoffman Estates to continue collecting money from the area if Sears left and use that money to operate the Sears Centre Arena, according to the district.
“The bill filed today is horribly wasteful in reaching its goal of keeping Sears here, and it might as well be renamed the ‘Hoffman Estates EDA’ bill,” Superintendent Michael Bregy said in a written statement.
The Sears committee hearing has been postponed while legislators attempt to work out more details, according to the Daily Herald.
* And check out how the Tribune straddled the tax cut issue in today’s editorial…
Wealthy traders seeking an advantage in the corridors of power typically elicit zero sympathy. Still, CME raised a valid point. At top exchanges around the world, the open-outcry trading floors with their shouting and arm-waving have mostly gone the way of the dinosaur. The vast majority of trades occur via computer screen. As a result, it doesn’t make sense to tax CME and its smaller kin, CBOE Holdings, as if all their trades still took place in the physical trading pits of downtown Chicago. Most trades originate out of state or even out of the country, so some adjustment to the tax scheme for the city’s exchanges makes sense.
Look out below.
Once word trickled out that CME and CBOE might be receiving a significant tax cut, the wish list grew. Gov. Quinn, channeling his inner populist, proposed increasing the earned-income tax credit for low- and middle-income families. He also reportedly wants to index personal income-tax exemptions so they rise with inflation.
The GOP, meantime, wants a cut in the estate tax and favorable tax treatment of operating losses. Illinois supposedly would pay for the cuts by introducing a longer schedule for depreciation of asset purchases. That proposal may or may not make up for the lost revenue from the tax cuts being talked about, however.
Sears, which wants financial inducements to keep its headquarters in Illinois, also might profit from this package.
We’ve all seen this before: legislative leaders rushing a complicated package that deserves more careful consideration than it’s likely to get in a veto session. Which leaves us wondering:
However good this tax package, will Illinois be able to afford it? Or will it just lead to more unpaid bills and more taxpayer debt?
* Related…
* Lawmakers could start debating Sears’ future today
* CME Is Legally Liable For MF Global Customer Losses
* Senator speaks to media
- VanillaMan - Tuesday, Nov 8, 11 @ 10:24 am:
That’s it.
I’ll help that SOB pack.
- walkinfool - Tuesday, Nov 8, 11 @ 10:32 am:
This thing’s growing faster than the gaming bill.
Trying to please everyone with some power is an insidious disease.
And the Trib has now taken both sides on taxes: “reducing taxes will automatically lead to fiscal health” but “reducing taxes could lead to fiscal disaster” (when small businesses and less wealthy are included).
- BigTwich - Tuesday, Nov 8, 11 @ 10:32 am:
So, CME’s state tax burden is $150 million a year and part of the plan to give them some relief will cost the state $317 million next year and more in subsequent years?
- Nieva - Tuesday, Nov 8, 11 @ 10:33 am:
I would think that a earned income credit to people that pay little or no tax would not be a tax break but a tax loss to the state. Someone has to pay this and if the money comes at a net loss of revenue to the state then it is money paid out just like wages to an employeel
- wordslinger - Tuesday, Nov 8, 11 @ 10:35 am:
Everyone in Illinois should very carefully read the bottom link, “CME is legally liable for MF Global Customer losses.”
Unless something dramatic happens soon, Illinois taxpayers, and Illinois taxpayers alone, are about to underwrite CMEs gross incompetence (or your word here) in one of the biggest single takedowns in financial history.
- Cassiopeia - Tuesday, Nov 8, 11 @ 10:42 am:
So a state that is bankrupt agrees to further reduce its revenue because of threats by companies to leave again?
Things are not going to end well with this but nobody will keep track of it until all the cans pile up at the end of the road.
Our political “leaders” are delusional.
- wordslinger - Tuesday, Nov 8, 11 @ 10:47 am:
A taste of the CME article and the “missing” $650 million.
–CME’s failure to act immediately to make MF Global customers whole is not just a legal and moral failure. It is bad business in the long term. Why should customers put their money at risk in futures markets when the clearing house guaranty is worthless? No one will ever again take the promises of exchange clearing houses seriously. Few people will be interested in participating when money can be and is stolen so easily, and the clearing house fails to keep its promises.–
- Ahoy - Tuesday, Nov 8, 11 @ 10:53 am:
Why don’t we just lower the corporate tax rate for everyone?
- but what do I know??? - Tuesday, Nov 8, 11 @ 11:05 am:
Anyone who wants to read the latest proposal –
SB 397 HA2.
- walkinfool - Tuesday, Nov 8, 11 @ 11:05 am:
Ahoy: These large companies would still threaten to leave unless we give them money, leveraging offers from other states, regardless of the tax rate.
I’m with you for smaller companies.
- Aldyth - Tuesday, Nov 8, 11 @ 11:34 am:
As the state of Illinois packages up the store for the purpose of giving it away.
- Justin Boland - Tuesday, Nov 8, 11 @ 11:35 am:
The CME moving is a transparently hollow threat.
Their lifeblood is their young, wealthy and highly motivated base of actual traders — they’re not gonna leave Chicago. That’s absurd. They won’t turn their backs on living the high life in one of America’s very best cities for…Indiana. That’s a joke.
- Rich Miller - Tuesday, Nov 8, 11 @ 11:39 am:
===young, wealthy and highly motivated base of actual traders — they’re not gonna leave Chicago===
The trading floor would remain. Traders wouldn’t have to move. Most do it electronically anyway.
- Justin Boland - Tuesday, Nov 8, 11 @ 11:52 am:
Aha, so they’d just move the “corporation” — an on-shore tax haven. Frankly, I’m surprised they didn’t already do that, if it’s been an option all along.
- Anonymous - Tuesday, Nov 8, 11 @ 12:04 pm:
Thank you sir, may I have another?
- wordslinger - Tuesday, Nov 8, 11 @ 12:05 pm:
–Aha, so they’d just move the “corporation” — an on-shore tax haven. Frankly, I’m surprised they didn’t already do that, if it’s been an option all along.–
I don’t think it is or has been. Despite all the saber-rattling about “with electronic trading, we can do business anywhere,” the fact of the matter is, no one has or does.
NASDAQ is headquartered in Manhattan.
There are many reasons why every major exchange in the world is located in a large, high-cost city.
But for the purposes of the proposed shakedown, we need to swallow the fiction that they could “do business anywhere.”
- whetstone - Tuesday, Nov 8, 11 @ 12:20 pm:
Re: “CME Is Legally Liable For MF Global Customer Losses,” I’m not sure that’s the case; it’s worth reading the comments. The author claims an ambiguity in the CME’s language that would allow it to use all deposit funds, not just MF Global’s, to cover lost MF Global funds.
IANAL, but the language really doesn’t seem ambiguous to me, and I’m not sure his thesis holds.
- Anonymous - Tuesday, Nov 8, 11 @ 12:24 pm:
Although the questionable business practices and judgement that the CME legally liable article spotlights is laudable, the author makes spurious and questionable legal conclusions. I see no definitive legal obligation on CME for MF Global losses.
- going back - Tuesday, Nov 8, 11 @ 12:45 pm:
The CME gets a piece of every single trade that is made either electronically or on the floor. Their clearing fees - that is what gives CME’s stock value. Their business does exist in Chicago - similar to the commentator that mentioned the NASDAQ exchange.
- Gregor - Tuesday, Nov 8, 11 @ 12:45 pm:
This is the worst shakedown since Cellini met Rosenberg.
I tell ya, these guys are bluffing. Throw them a VERY modest bone, and tell them to sink or swim on their own.
- going back - Tuesday, Nov 8, 11 @ 12:53 pm:
the other thing I am curious about — why not make the clearing firms pay the tax? Back when I was there, there were any number of them besides MF Global- they handle the trades for clients.
That way, CME would stay in Chicago, and the clearing firms would pay the tax - regardless of where they are located? they wouldn’t stop trading at the CME either. The exchanges have exclusive right over the contracts traded there - (i.e. S&P 500 futures/options, the Treasury Bond contracts, etc. etc.) They cant be traded elsewhere.
- Justin Boland - Tuesday, Nov 8, 11 @ 12:58 pm:
wordslinger, Rich — thanks much for the clarifications. Appreciate the feedback.
- JBilla - Tuesday, Nov 8, 11 @ 1:14 pm:
I’m glad that in addition to increased global competition, bank and insurance raiding, a missing jobs focus, and increased communication costs, we legitimately are still talking about Duffy and his “Tour de Springfield.”
- hisgirlfriday - Tuesday, Nov 8, 11 @ 1:20 pm:
How do supporters of the Amazon tax passed earlier this year reconcile that with their support for the CME tax break?
Isn’t CME’s argument basically the same as Amazon: oh our physical presence in the state isn’t that much, oh we’ll leave the state if you don’t let us have this break?
- Rich Miller - Tuesday, Nov 8, 11 @ 1:22 pm:
The Amazon Tax was about collecting sales taxes on items sold in Illinois. Way different.
- Rudy - Tuesday, Nov 8, 11 @ 2:14 pm:
In hard economic times, the biggest fish are first in line to demand guarantees: the unions get a no-layoff promise from the Governor, the utilities get out from under rate regulation, and the stock exchanges get the tax code changed.
- hisgirlfriday - Tuesday, Nov 8, 11 @ 2:31 pm:
Rich,
Isn’t CME selling contracts and swaps and derivatives in Illinois even if it’s a majority of out-of-state buyers that are purchasing them via the Internet? The transactions are still taking place in Illinois, just like the Amazon sales were taking place in Illinois, right?
I just am trying to understand CME’s argument that they shouldn’t have to pay income taxes because trades originate out-of-state.
I realize the Amazon deal was about collection of sales taxes and this new CME deal is about giving them a break on income taxes, but I do think the Amazon tax is relevant to CME’s argument that their tax burden is somehow unfair because so much of their income is generated by out-of-state traders when the purchasing and selling of products and the making of their transactions is absolutely happening within the state of Illinois.
- thechampaignlife - Tuesday, Nov 8, 11 @ 2:59 pm:
===as first reported by Rich Miller at Capital Fax===
Is Capital Fax a new financial newsletter? Where can I sign up?
- RichardtheLionHearted - Wednesday, Nov 9, 11 @ 6:14 am:
I run a small business in this corrupt state. The reason businesses stay here is proximity to demand and a moderate tax burden. Well that last reason was purged with the massive tax increase. We business owners are not stupid, we can see the massive unfunded liabilities. We know who you are going to “tap” to try to pay for all these freebies.
The Illinois business camel is fully loaded and state government is throwing on more straw on our back.