* The NFIB’s Kim Clarke Maisch argued forcefully against a sales tax on services in a 2012 Crain’s op-ed…
Advocates for higher taxes seem not to have learned from experience. Lawmakers and activists in Springfield have been pushing for years to expand the state sales tax to include services. And with another gaping hole in the budget, the temptation is getting stronger. Crain’s columnist Joe Cahill argued, based on various studies, that the state’s fiscal problems are the result of a “narrow” tax base that exempts “half of the state’s economy” from taxation.
There are two problems with this view: First, it fails to consider the relationship between taxes and economic activity. It is basic economics that higher prices result in lower demand. Higher taxes increase prices and therefore consumer behavior. Even President Barack Obama seems to understand. He thinks that higher energy prices will discourage the consumption of fossil fuels, and that subsidies for green energy that reduce its cost artificially will make it more attractive for consumers. It’s the same theory behind higher cigarette taxes, higher alcohol taxes and higher taxes for people who don’t buy insurance.
The point is that even the cheerleaders for higher taxes know that they change consumer behavior. Where conservatives want lower taxes to encourage consumption, liberals want higher taxes to dampen the demand for products and behaviors they don’t like. Whether that’s the proper role for government — to use the tax code to manipulate personal behavior — is a debate for another day. But there’s really no debate that higher taxes on the service economy will weaken the demand for services.
Mr. Cahill seems to dismiss this theory by stating, “Sorry, but I just don’t believe that Illinoisans will start cutting their own hair if they have to pay sales tax at the barbershop.” He may be right about haircuts, but many border communities for years have complained that folks are going across the state line to buy cheaper gas, cheaper alcohol and cheaper cigarettes. Isn’t it likely that if a service tax comes to Illinois, consumers will seek lower prices where they can find them, including across the border? […]
More than half of all of the jobs in Illinois are provided by small businesses. They can’t wave a magic wand and increase their sales by 6.5 percent, and their customers can’t give themselves a raise. Expanding the sales tax would hurt both groups precisely when we need more consumer activity.
* Joe Cahill followed up after Bruce Rauner unveiled his service tax plan…
Mr. Rauner’s proposal to extend the state’s sales tax to services is a common-sense idea that would raise revenue while making the tax base broader and fairer. As I’ve written before, there’s no rational justification for levying sales tax on nail polish but not manicures. […]
A substantial segment of Illinois business, I should add, disagrees with me on this point. They’ll be no more pleased with Mr. Rauner’s stand. Here’s what Kim Maisch, Illinois director of the National Federation of Independent Business, has to say:
“The NFIB and our 11,000 small-business members have long been opposed to a service tax here in Illinois . . . no matter who is pursuing the idea. As we look at Mr. Rauner’s proposal in its entirety, there are certainly items we can also support. However, no matter who the next governor is, NFIB will lead the fight against any legislative effort to bring a service tax to Illinois.”
By opposing a powerful, Republican-leaning interest group on a contentious issue, Mr. Rauner shows a willingness to put the state’s overall welfare ahead of his own short-term political interests. That’s a rare thing in Illinois politics, and he deserves kudos for it.
That NFIB endorsement will be a must watch event. The group has fought tooth and nail against a service tax for decades and now Rauner has opened the door wide.
* By the way, the Illinois Chamber has also fought hard against a service tax over the years. That group is run by Ms. Maisch’s husband Todd Maisch. So far, he’s been very quiet about this Rauner plan, and his group is also in the midst of formulating its endorsements.
- Oswego Willy - Tuesday, Jul 22, 14 @ 11:25 am:
Split household?
To the Post,
Rauner is going to have to navigate through some usual GOP or Business friendly groups to get to where he needs to be with the voters.
When the money for these groups isn’t a factor, you go alone, however, money is one thing, lobbying against your proposals until November is another thing.
Are the Chamber and NFIB going to be seen by Rauner as “part of the problem” in Springfield too(?)
- Not Rich - Tuesday, Jul 22, 14 @ 11:29 am:
IF, Rauner wins, March-April-and May will be interesting and fun.. It has been a while since we have had an R Gov and the gamesmanship will be great theatre. If the pension reforms blow up courtesy of the Supreme’s then every revenue/tax idea is fair game.
- PublicServant - Tuesday, Jul 22, 14 @ 11:32 am:
So Rauner supports a tax that hits little guys (including small business owners) much more than his hedge fund buddies, huh? Now there’s a shock.
- steve schnorf - Tuesday, Jul 22, 14 @ 11:35 am:
so NFIB and the Chamber might endorse Quinn based on objections to Rauner’s tax plan. When pigs fly! Just like the public unions might go with Rauner because of how Quinn has treated them. When HUGE pigs fly!
- walker - Tuesday, Jul 22, 14 @ 11:37 am:
===”every revenue/tax idea is fair game”===
Completely agree, except we are already there. They should have been “fair game” for at least five years now.
The rejection of the pension reform law would just make an almost impossible situation even worse.
- Yellow Dog Democrat - Tuesday, Jul 22, 14 @ 11:45 am:
Schnorf:
NFIB…probably not. Nor Chamber.
But, the inter tubes are littered with enough quotes from both already that Team Quinn can make plenty of hay.
It does give Democrats an opportunity to beat up Republicans on taxes.
Actually, I am surprised my state rep hasn’t already announced his opposition to Rauner’s plan to raise the income tax back to 5% and tax small business out of existence.
And, every single Republican taking Rauner cash is now tainted…
“Joe Bob has taken hundreds of thousands from special interests who want to raise our income taxes and increase the sales tax by $600 million a year, driving up the cost of everything from groceries to gasoline.”
- steve schnorf - Tuesday, Jul 22, 14 @ 11:49 am:
the usual suspects will line up in their regular places and read from the same well-worn scripts they usually do. That isn’t a criticism, it’s reality: Rs endorse Rs, and Ds endorse Ds, and if you fail to take your stand you about have to hope the other guy wins, because your guy expects his enemies to screw him but not his friends, so his wrath could be something to behold.
- Norseman - Tuesday, Jul 22, 14 @ 12:07 pm:
It always the details that get you in trouble.
- A guy... - Tuesday, Jul 22, 14 @ 12:21 pm:
Don’t look now, but there is some Shaking up going on now as we speak. NFIB and the Chamber need to look responsive to their members. They’re fighting the good fight. They’ll never endorse Quinn whether Arnold Ziffle flies by or not.
- ZC - Tuesday, Jul 22, 14 @ 12:39 pm:
Wow that is one weak argument by NFIB above.
1) “Taxes decrease consumption!” (Well, sure, but an anarchic road warrior state reduces consumption a lot more, except maybe for shotguns and crossbows. You have to tax something if you still believe in public goods at all. Furthermore, this is also a fairness issue where some businesses are inside the tax bubble, and others aren’t, with not much in the way of any coherent theory why. And a broader and less arbitrary base of taxes means you should be able to lower the rates across the board.)
2) “We don’t believe in using taxes to do that liberal thing where you influence personal behavior” - EXCEPT consumption itself, or other things you happen to like (capital formation / investment by really rich dudes). Slight philosophical tension there.
3) “Raise our taxes, and we’re leaving the sta–aaaate!” It never gets old. Maybe we need to start a grassroots campaign where every Democratic business owner outside Chicago threatens to relocate to Milwaukee or St Louis if Rauner wins (I realize many Republicans wouldn’t care about a mass Chicago exodus…)
- Formerly Known As... - Tuesday, Jul 22, 14 @ 1:12 pm:
== When pigs fly! ==
steve has really been on point these past few days.
Any day other than April 1st, these groups would go with a “no endorsement” in the race before “Quinn endorsed”.
- Yellow Dog Democrat - Tuesday, Jul 22, 14 @ 1:20 pm:
@ZC -
If Team Quinn had any clue what they were doing, that is exactly what they would do.
According to NFIB, 82% of small business owners oppose service taxes. It will not be hard to convince them that the Rauner Plan opens the door to expanding the sales tax to include everybody else.
- Formerly Known As... - Tuesday, Jul 22, 14 @ 1:24 pm:
== Mr. Rauner shows a willingness to put the state’s overall welfare ahead of his own short-term political interests ==
Is that what he did?
Or did he finally feel pressure to explain how he would address the billions lost from expiration of the tax increase? So he unveiled a recycled idea that addresses only a fraction of the problem in hopes of easing the pressure?
- ZC - Tuesday, Jul 22, 14 @ 1:52 pm:
YDD,
Basically agreed, I don’t want to see Rauner win, except that speaking Democrat to Democrat (in this, err, private forum) I would be careful how I frame such attacks, because in a -different- context (one that included a healthy dollop of revenue from income, too, say) something along the lines of what Rauner proposes is (I have been convinced by Ralph Martire) not a bad idea.
I think we’ve always got to factor (again, as part of the equation) the short-term electoral benefits vs the long-run cost of demonizing policies that could be, properly used, good for the state. We don’t want to go too far down the road the DC Republicans have taken (full-throated opposition to what is, in essence, their own good idea, namely Obamacare / the individual mandate).
- Yellow Dog Democrat - Tuesday, Jul 22, 14 @ 3:54 pm:
ZC -
Quinn is down 10 to 15 points and we are just about through the third quarter.
If he doesn’t start playing some actual offense, completing passes and first downs, there is no “long-run” for
Pat Quinn.
If he should manage to win re-election and sales tax modernization once again becomes part of the mix, “we will burn that bridge when we get to it.”
But I do not see this package of Rauner’s passing anyway. If it does, it will be a structured roll call, and public opinion will be moot.
- facts are stubborn things - Tuesday, Jul 22, 14 @ 5:07 pm:
service tax is regressive. A progressive income tax would be better overall.