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Unclear on the concept

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* Rep. Mike Smiddy (D-Hillsdale) supports raising the minimum wage to $10 an hour and talked a bit about the impact on small business

Smiddy said he agrees that more of the tax burden should be shifted from small businesses to large corporations. He believes that loopholes would be closed by shifting away from what he calls an antiquated tax system based on property.

“Illinois is one of only 7 states that still have a flat-tax system,” Smiddy said. “We need to move to a graduated-tax system.”

* OK, this is a bit off on at least a couple of levels.

1) Big corporations don’t pay a whole lot of corporate income taxes. But unless they’re in a TIF district, some of the only taxes that big corporations pay are property taxes. Shift property taxes to the income tax and corporations won’t be paying much of anything. Unless something else is done, the burden will be shifted to individuals and small businesses.

2) Except for the 2.5 percent Personal Property Replacement Tax, most small businesses don’t pay the corporate income tax at all, but they do pay personal income taxes. Increasing tax rates on higher earners will most definitely impact small business owners.

You want to help out small business in exchange for raising the minimum wage? Well, one option would be to lower or eliminate the PPRT, or do something more about workers’ comp and unemployment insurance costs.

posted by Rich Miller
Friday, Feb 14, 14 @ 10:28 am

Comments

  1. The news reports sounded like he got a lot of push back at his town hall. Oops

    Comment by Empty Suit Friday, Feb 14, 14 @ 10:40 am

  2. These piecemeal proposals are often heavy on partisanship but light on offering a cohesive plan. Good points, Rich.

    Comment by Formerly Known As... Friday, Feb 14, 14 @ 10:40 am

  3. Uh oh! Someone let Rep. Smiddy talk without getting staff approval.

    Comment by Norseman Friday, Feb 14, 14 @ 10:44 am

  4. Biz pays little or nothing.
    They were the big winners with BLinkyJim Edgar and the GOPies pushed through real estate tax caps.
    The reformers all claimed this would help homeowners, but biz waz the big winner

    Comment by CicrcularFiringSquad Friday, Feb 14, 14 @ 10:50 am

  5. Rich, you’re mistaken about TIFs. Even if a corporation is in a TIF district they will pay the full amount of property taxes that are owed on the property. TIF districts don’t reduce the property tax on anybody, they just divert the portion of property taxes that were caused by the increase in property values from the development. That tax increment usually goes to the developer and is split with the city.

    Comment by Downstate Illinois Friday, Feb 14, 14 @ 10:53 am

  6. “some of the only taxes that big corporations pay are property taxes. ”

    What about payroll tax? Licenses? Fees? Telcomm tax? Tolls? Sales tax? Fuel tax? Employment security tax? Franchise tax?

    Comment by Anon Friday, Feb 14, 14 @ 11:15 am

  7. Anon, I didn’t say they didn’t pay any other taxes at all.

    Comment by Rich Miller Friday, Feb 14, 14 @ 11:17 am

  8. Downstate Illinois, while admittedly an inartful statement of mine, what I meant is that the companies get some of that tax money back through direct investment in the district.

    Comment by Rich Miller Friday, Feb 14, 14 @ 11:25 am

  9. Dang Rich, could not have put it any better than you did if I tried.

    Circular, you may not have underestood Rich’s point about taxes. Please do not lump small business in with big ‘biz’. The vast majority of Illinois business (90% plus) have less than 20 employees and don’t organize as C corps and get those tax benefits.

    Comment by Living in Machiaville Friday, Feb 14, 14 @ 11:26 am

  10. Rich -

    Agree with you on a few levels. First, an unbiased snapshot of the business tax climate in Illinois from the nonpartisan Tax Foundation:

    Business Tax Climate for Illinois (1=Best, 50 = worst):

    Overall: 31
    Corporate Tax Rate: 47
    Individual Income Tax: 11
    Sales Tax: 33
    Unemployment Insurance: 43
    Property Tax: 44

    Rich has a point that some businesses pay a lot of property taxes, but honestly how much real estate does it take to run a dot.com?

    Most of the inequity in property taxes is driven by the inequity in the school funding formula, which a graduated income tax system would likely address, and the “unique” Cook County property tax system which shifts the tax burden from individuals to businesses — which most reasonable people agree probably ought to change and nearly everyone agrees isn’t going to change any time soon.

    On the unemployment insurance tax rank, Illinois could review the rankings to ensure they are actuarially sound, but since the primary driver of insurance rates is wages, and Illinois happens to be a high-wage state, I wouldn’t read to much into it.

    A few final points:

    Business tax climate is only one of the data points businesses examine, and while one of the easiest to quantify and measure across localities, it is certainly not the most important factor.

    California is ranked 48th worst for its tax climate, but last time I checked, Silicon Valley was still in California and analysts said California was running strong, despite the worst drought in a century.

    New York is ranked 50th. Last time I checked, New York was home to Wall Street and more Fortune 500 companies than any other state.

    So, take these rankings with a grain of salt. And two shots of tequila.

    Comment by Yellow Dog Democrat Friday, Feb 14, 14 @ 11:27 am

  11. I think most small businesses pay 1.5% PPRT and corporations pay 2.5%. but either way i wish we could get rid of PPRT and just have one rate. and if they ever pass a graduated tax then drop the PPRT for small businesses altogether. if most corporations don’t even pay corp tax then this talk of lowering it looks like such a snub to small biz when talk of graduated tax at same time.

    Comment by PoolGuy Friday, Feb 14, 14 @ 11:44 am

  12. Regardless of how taxes are apportioned between “big” and “small” businesses, businesses remain tax collectors. The tax load falls onto the end purchaser of a business’s product or service, subject to competitive forces controlling how much of the load a business can pass along to its customers. And if the business cannot successfully pass on the load relative to its competitors and maintain a competitive price, it folds. Seems when folks talk about taxes on businesses, they neglect to consider how business operates.

    Comment by Cook County Commoner Friday, Feb 14, 14 @ 12:12 pm

  13. This goofy statement from Smiddy begs that one of two things happen; fire a staffer for a dopey position paper. Get a staffer, because the dopey position was arrived at on his own.

    Comment by A guy... Friday, Feb 14, 14 @ 1:04 pm

  14. The problem with reducing or eliminating the PPRT is that the tax receipts go to units of local government. For example, according the Department of Revenue, Springfield School District 186 received $3,682,000 for the most recent year. If you eliminate that revenue stream to the locals, they will have to replace it and more many of the local governmental units the only option would be to raise property taxes.

    There may also be a constitutional issue with eliminating the PPRT as well. The PPRT was enacted in 1979 because the Illinois constitution of 1970 mandated the elimination of personal property taxes and charged the General Assembly with coming up with a replacement for the revenues. (See Article IX, Section 5(c) of the Constitution.)

    Comment by Just the Facts Friday, Feb 14, 14 @ 1:45 pm

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