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Behind the MJM tax cut proposal

Friday, Jan 31, 2014

* Greg Hinz looks at House Speaker Madigan’s surprise proposal to cut the corporate income tax rate in half

Now, few people ever decipher exactly what the speaker is up to. And the plan comes at a time when both the sad shape of the state’s economy and its weak finances are drawing tons of attention in the Legislature and on the gubernatorial campaign trail.

So, I’d view the Madigan proposal as a bit of a conversation-starter. But as Illinois Chamber of Commerce President and CEO Doug Whitley puts it, “When Mr. Madigan is the person pushing it, I take it seriously.”

Mr. Whitley’s suspicion is that the speaker may want to lower the tax rate while widening the tax base by eliminating exemptions and “loopholes,” something that could get a lot of support. And there appears to be no question that while some Illinois taxes are relatively low, the corporate income tax puts this state at a competitive disadvantage relative to neighboring states.

So, maybe that’s it. Or maybe the speaker fully knows his proposal faces an uphill battle to get past Senate President John Cullerton and Gov. Pat Quinn, and therefore is just snagging a bit of easy pro-biz protection for his caucus.

I think Whitley and Hinz are both probably right.

* House Republican Leader Jim Durkin was more suspicious of Madigan’s motives

“Is this a bait and switch to move to a graduated tax, which House Republicans oppose?”

I don’t think MJM is all-in on the graduated tax proposal, but props to Durkin for getting that “which House Republicans oppose” phrase into the story.

* But I really doubt these revenue claims can be achieved on their own…

Madigan’s office doesn’t believe it would leave a massive hole in the budget.

“I think if you look at what happens in other states, and what is likely to happen here, that the moneys that might be lost in terms of tax rate and the existing number of employers will be offset by growth in terms of employers and employee wages,” Brown said.

Brown says the idea is a more fair, across-the-board way of attracting and retaining businesses, versus giveaways for select big companies.

Without any corresponding loophole closures, you’d have to grow the economy in a very big way to make up for that annual $1.5 billion budget hole.

* Tribune editorial

And now, with the gubernatorial candidates of both parties failing to make much of an impression on what Illinois should do about income taxes, Michael Madigan positions himself as the leader to watch.

We hope he’ll think broadly about this state’s high spending and the overall tax scheme that enables it. Example: Should the scheduled rollback in income tax rates be linked to a reduction in state sales tax rates and application of that tax not only to goods, but to services?

In other words, can Madigan exploit the opening he has created to give Illinois a broader tax base — with lower rates for every individual and business?

For now, Madigan has telegraphed that the pension reforms he helped pass are far from enough to rejuvenate this state’s languishing economy. He has outflanked the leaders of both parties (and their candidates for governor) to start the overdue debate on tax rates.

* But

And for those who want to see the hike expire?

“Well hopefully they’ll come forward with their idea for what programs they want to cut, and what taxes they want to force on local governments or schools or what have you,” Brown said. “That’s sort of two separate issues in our view.”

* And then there’s this

With an S corporation classification, businesses pay the personal income tax rate of 5 percent. Noonan’s Hardware, in Springfield, is among them. Owner, Matt Noonan III, says a corporate tax cut would give his competitors an advantage, strengthening their bottom lines and, at times, allowing them to offer lower prices.

That’s true, up to a point. The biz tax rate right now is 7 percent, plus a 2.5 percent Personal Property Replacement Rax. Cutting just the tax rate in half would leave it at 3.5 percent, plus the 2.5 percent PPRT, for 6 percent.

…Adding… From Irma…

Hi, Rich. I noted your response to Matt Noonan. The PPRT applies at the rate of 1.5% to partnerships, trusts, and S-corps. So to Mr. Noonan’s point, he would be paying 6.5% compared to his competitors 6%. Just thought you would want to know that the PPRT doesn’t apply just to C-corps. - Rob

Rob Karr, President & CEO
Illinois Retail Merchants Association

* Kadner gets the last word

Whether Madigan is serious or not, his announcement is going to make it very hard for any Democrat to call for an extension of the temporary personal income tax hike that’s set to expire at the end of the year.

How can you give corporations in Illinois a $500 million to $750 million tax cut this year ($1.5 billion over two years) and then tell individual taxpayers they have to pick up the tab? […]

I don’t really care what his motivation or intent is at this point.

Madigan, who’s also the state Democratic Party chairman, has said corporations deserve a tax break. No matter how that plays out, I don’t want to hear him say anything about extending the personal income tax hike for the good of the state.

As for Democratic legislators, who repeatedly have supported Madigan for speaker of the House, they better understand what this means to voters in November. No switching the debate to a graduated income tax now.

I’ve tried to be a voice of reason, but unlike our elected officials, I can’t tell working stiffs to give more to the state when corporations and lawmakers play them for suckers.

Give us all a tax break now.

As for the financial consequences, hey, that’s never been a concern to political leaders in Illinois.

- Posted by Rich Miller        


19 Comments
  1. - Skirmisher - Friday, Jan 31, 14 @ 10:28 am:

    If Madigan’s proposal to cut corporate rates turns out to be tied to elimination of all of the sweetheart corporate loopholes and tax breaks that have been handed out over the years, then it would seem to be a good proposal. But that would take away a great deal of political leverage, useful for squeezing out big corporate donations. So I have my doubts about all of this! We need major tax reform, for sure, including lower business rates across the board and a graduated tax fr everyone else.


  2. - fed up - Friday, Jan 31, 14 @ 10:32 am:

    interesting article, the corporate tax rate does seem high yet, I agree that it seems hard to believe that Madigan wants to cut the tax for big buisness yet, willing screwed state workers and retirees, plus I dont see him letting the “temporary” income tax expire. Maybe he wants to expand the sales tax to services or close loop holes who knows he isnt saying


  3. - Anon - Friday, Jan 31, 14 @ 11:09 am:

    If Madigan puts his bill on the floor as a stand-alone proposal, Republicans will vote for it.

    On the other hand, it’s no more credible to claim that tax cuts pay for themself when Madigan says it than when Republicans do.


  4. - thechampaignlife - Friday, Jan 31, 14 @ 11:17 am:

    I hope they’ll throw retirement income, service tax, and increased personal exemptions in with this lower the rate, broaden the base plan.

    I’d like to see retirement income taxed when it’s earned so we get the money now and don’t have to worry about retirees fleeing the state.

    We’re missing out on so much revenue and have a higher sales tax rate than needed by not taxing services.

    And the increased personal exemptions makes the income tax more progressive without having to amend the constitution for a graduated tax.


  5. - Soccermom - Friday, Jan 31, 14 @ 11:27 am:

    If he could really succeed in closing loopholes, then this could actually result in increased corporate tax receipts. As it stands, many of Illinois’ biggest and most profitable corporations pay nothing in state income taxes.


  6. - fed up - Friday, Jan 31, 14 @ 11:27 am:

    thechampaignlif
    “I’d like to see retirement income taxed when it’s earned so we get the money now and don’t have to worry about retirees fleeing the state”.

    maybe if the state was better run than a Bannana republic ruled by a king(madigan) people wouldnt flee as soon as the could.


  7. - walker - Friday, Jan 31, 14 @ 11:34 am:

    What’s behind Madigan’s thinking?

    Good luck with that!

    Better just to analyze the proposal’s impact on the face of it, to start somewhere.

    Is the projected savings accurate? — not unless we are in a stronger recovery than we thought.

    What will the economic impact on business actually be? — probably slight financially, but possibly strong at setting the right perceived environment (not to be underrated)

    What is the political impact? — that’s clear. It mitigates one of biggest perceived advantages in the GOP sales proposition — even if that proposition is mostly mythical.

    Corporate tax rates alone simply do not move established companies, in the real world. They impact a perceived overall “business-friendly” environment, (in combination with other factors), which can.

    Remember, Illinois is already one of the highest producers of start-ups in the country — outpacing all but Texas and New York on raw numbers, and top overall on percentage growth since 2009. So tax structure has little to do with new companies.

    Whitley has got it right — it’s not trivial, or political pap, when Mike’s on the march.


  8. - Precinct Captain - Friday, Jan 31, 14 @ 11:59 am:

    I really can’t see Madigan being serious with this right now from a policy standpoint. Tax cuts, particularly large corporate tax cuts, are generally in the realm of Republican proposals. Madigan has co-opted them. The focus is on cutting taxes and somehow magically growing jobs out of those cut taxes rather than companies stuffing their pockets. Of course, the policy is largely fantasy, but guess what? We will be talking for a long time about Democratic proposals friendly to business instead of the messy personal income tax disaster that is looming. That’s what is important. The focus is on proposed tax cuts by Democrats. The proposal gets business interests to cozy up to Democrats running for reelection as well as changing the subject from a personal tax hike extension to a business tax cut. Good politics but terrible policy from Madigan.


  9. - Jim'e' - Friday, Jan 31, 14 @ 12:05 pm:

    Yo, fed up and thechampaignlif; retirement income is not taxed by the State, and that is an incentive for retirees to stay in Illinois. Now, minus 8 degrees weather, that’s a different matter.


  10. - Challengerrt - Friday, Jan 31, 14 @ 12:29 pm:

    I’ve got news for you, I’m a state employee and nothing the state could do would make me stay in Illinois when I retire! N-O-T-H-I-N-G


  11. - Marty Funkhouser - Friday, Jan 31, 14 @ 12:37 pm:

    Funny to watch the state’s Democratic speaker propose an idea straight out of the discredited Republican supply-side economics playbook. Then again, MJM has never really cared all that much about issues from a public policy standpoint.


  12. - Union Man - Friday, Jan 31, 14 @ 12:58 pm:

    Jim’e'….. I’m with you! Four years to retirement and we’re out of here!! Moving to Washington state!


  13. - Ghost - Friday, Jan 31, 14 @ 1:04 pm:

    === If Madigan’s proposal to cut corporate rates turns out to be tied to elimination of all of the sweetheart corporate loopholes and tax breaks that have been handed out over the years, then it would seem to be a good proposal.====

    This would be ideal and fair. it would also create a system that would be more cost effective to enforce. The fights with auditors, accoutants and the dept of Rev over whetehr a loophole applies and is being applied correctly could all be eliminated or reduced, making the determination of tax liability simpler and easier to enforce.


  14. - Angry Republican - Friday, Jan 31, 14 @ 1:16 pm:

    Maybe the speaker wants to tie the corporate tax cut to implementation of a gross receipts tax (VAT). VAT’s are very efficient at generating revenue, but the state legislature has shown time and time again they cannot be trusted with other peoples money.


  15. - Juvenal - Friday, Jan 31, 14 @ 1:47 pm:

    @Angry Republican

    The Gross Receipts Tax was unanimously opposed by the Illinois House when Rod Blagojevich proposed it. We won’t see it for a political generation in Illinois.

    With all due respect, I dont think there is a way to cut the corporate rate by 50% and make it revenue neutral.

    In FY 12, there was $1.7 billion in tax expenditures to businesses, with about $500 mill targeted to agriculture.

    You aren’t going to go after them all.

    on the other side, you could esentially gut spending for economic development…not a popular idea from those businesses getting that dough.

    And, as Kadner points out, I think it is darn near impossible politically to cut the corporate rate in half without cutting the personal rate in half.

    Good luck with that budget hole…if you want to see a ‘death spiral”, imagine the ripple effect as nonprofits, hospitals, schools accross the state implement mass layoffs


  16. - Formerly Known As... - Friday, Jan 31, 14 @ 2:37 pm:

    Phil Kadner nails it.

    Very well said, sir.


  17. - W.S. Walcott - Friday, Jan 31, 14 @ 3:48 pm:

    Everyone seems to be trying to “tie” this proposal to something, but I feel the “tie” is essentially a two-bird-one-stone tie. It goes a little something like this…

    Dear large corporation,
    We are giving you a tax break, but you will now be paying your employees at least $10 per hour.
    Thank you.

    Dear citizen,
    Your income tax will not be lowered as previously scheduled, but you will earn at least $10 per hour.
    Thank you.


  18. - Gandalf - Friday, Jan 31, 14 @ 4:08 pm:

    It’s really very simple - Madigan has disenfranchised union members so he is looking for another “sugar daddy” to tap.


  19. - Soccertease - Friday, Jan 31, 14 @ 4:27 pm:

    It’s too bad whenever Madigan proposes something everyone first asks questions like “What’s he up to? Is he really serious, or is this a political ploy?

    Why not address the temporary tax expirations first? Sometimes I really don’t believe Madigan actually knows what he is doing except confusing the issue, scaring/bullying people and trying to get reactions out of people.


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