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United tax break looms large

Tuesday, Nov 14, 2006

This was briefly an issue in the fall elections as Republicans claimed that the Dems should give motorists the same break as United. That talk has died way down, however.

Seeking to make good on political promises that kept United Airlines headquartered in Illinois, state lawmakers on Monday began debating giving millions of dollars worth of gas tax breaks to the airline giant.

On the table is a plan to cap how much United pays in sales tax on jet fuel, the price of which has skyrocketed alongside gasoline. The savings for United over the life of the five-year deal are pegged at $20 million.

Illinois has the country’s highest jet fuel taxes, and United executive Jake Brace said the airline ferries in cheaper fuel from other states to use at O’Hare International Airport because even that’s cheaper than paying Illinois’ taxes. […]

Not everyone’s on board. Competing airlines complain about being cut out of the deal, which provides tax breaks only after an airline buys 260 million gallons in Illinois. The only airline doing that is United.

The logic is United buys the most fuel, pays the most taxes, it’s a local company, so they should get the tax break. But whenever you give one company a break, the others ain’t happy.

Top executives at Southwest Airlines and American Airlines argued the threshold is too high for any airlines besides United to qualify for the break.

The incentive is being offered at a time when Democrats – including Gov. Rod Blagojevich – have rejected repeated calls by Republicans to cut the sales tax on gasoline used by motorists to fill up their cars, truck and SUVs.

Thoughts?

- Posted by Rich Miller        

11 Comments
  1. - BIG R.PH. - Tuesday, Nov 14, 06 @ 8:38 am:

    Once again this just proves the point that all politicians should pay heed. Illinois is NOT an island 500 miles from anywhere. Taxpayers of any sort will do whatever they can to avoid paying a tax. This is why Illinois residents flock to Missouri to buy gas and cigarettes. The point is that this state has to be competitive in the marketplace (in this case gasoline taxes) so that taxpayers purchase goods and services in THIS state so that we receive the tax revenue as opposed to purchasing it in another state so that another state receives the revenue.

    The Laffer curve works!!


  2. - Squideshi - Tuesday, Nov 14, 06 @ 9:14 am:

    There’s another term for this–corporate welfare.


  3. - Truthful James - Tuesday, Nov 14, 06 @ 9:15 am:

    Southwest has managed to minimize its fuel costs by hedging in the futures marketplace. I hear that tyheir hedges go out as far as two years.

    Which is one reason why Southwest can add new destinations and keep fares low. Hedges are not free.

    Now United wants free lunch.

    And from where will the revenue be obtained to replace United’s rebate?


  4. - VanillaMan - Tuesday, Nov 14, 06 @ 10:40 am:

    Illinois is a has-been state. It has been a has-been state since 1982. What has-been states do is bribe has-been corporations.

    Chicago and Illinois is headed for a huge collapse. As the major auto parts supplier for Detroit, Chicago will lose spectacularly as Detroit fails. The enormous social programs granted by the Democratic party here will continue to expand as this happens, eating what little is left in the fiscal budget. Taxes will rise, driving others away. Like Michigan, Illinois is on the brink of ruin.

    You would have to be insane to locate a business in Illinois. Even the giants that once ruled the corporate world are branching into open market states in the SW and SE, or overseas. Other Illinois corporations are being bought out by larger firms from healthy states. Illinois is a has-been.

    So go ahead and see if Blagojevich can keep United from bankrupsy for a couple more years. It won’t work. Go ahead and pass more social programs. Go ahead and start raising taxes to pay for it all. Welcome to the death spiral for has-been states.


  5. - Horseshoe - Tuesday, Nov 14, 06 @ 11:25 am:

    Do you ever enjoy anything Vanilla? Anytime I glance at a post of yours its all gloom and doom. Do you have anything to back up that 1982 comment? Stats that show a decrease in business? A decrease in investments? Constant slowdowns in construction maybe?

    Also if this state is so bad, why in the world do you continue to live here?

    Based on the fact that last week you were predicting that the Democrats wouldn’t win the House and certainly not the Senate and that Topinka and Radogno would win, I guess Chicago and Illinois are really headed for economic greatness.


  6. - Horseshoe - Tuesday, Nov 14, 06 @ 11:29 am:

    I think this is a bad idea. As Squid mentioned earlier, this is corporate welfare. While I’m not always opposed, United is in such a position that it would be greatly to their disadvantage to move from Chicago. They have so much infrastructure here that that building new buildings, training new staff, etc. greatly outweighs the price of fuel. Giving United more money might actually hurt Chicago business in the long run because smaller operations with less infrastructure in the city would turn away from Chicago. Smaller companies have less to lose leaving Chicago or not entering the market all together.


  7. - archpundit - Tuesday, Nov 14, 06 @ 2:38 pm:

    ====This is why Illinois residents flock to Missouri to buy gas and cigarettes.

    The problem with this is that every study done of this says it doesn’t happen.

    Has been states include Mississippi, Alabama, Arkansas and increasingly Missouri. Illinois could improve a lot of things, but it has one of the greatest economic engines in the country and is a state that sees more highly educated workers come into the state than leave the state. That’s not true for most low tax states.


  8. - Just Say No - Tuesday, Nov 14, 06 @ 3:35 pm:

    >The problem with this is that every study done of this says it doesn’t happen.

    Which is way every single gas station on the DuPage County side of the Cook / DuPage border has a huge sign that says ‘NO COOK COUNTY TAXES HERE’


  9. - archpundit - Tuesday, Nov 14, 06 @ 3:52 pm:

    Because someone has a sign or some bit of anecdotal evidence isn’t a way to make rational public policy. In fact basing public policy on anecdotes is probably the reason for most bad public policy.

    Illinois is only slighly above the median in terms of cigarette taxes. That means for someone to cross over to Missouri to get take advantage of the about 80 cent difference, the time and gas saved would have to be better than simply stopping in Illinois. There aren’t many people who find it a valuable use of their time to spend 20 minutes to save 80 cents. Those that do are irrational about taxes unless they believe their time is worth $2.40 per hour.

    The problem, then, with basing taxation policy on such people who do such things is that you are basing taxation policy on irrational people thus resulting in irrational taxation policy.

    It’s a basic problem for people who are reflexively against any tax—the arguments aren’t economic, but emotional.


  10. - Just Say No - Wednesday, Nov 15, 06 @ 7:35 am:

    As someone who live in Cook County and works in DuPage county, I can say I have not bought gas in Cook County in close to 10 years.

    I assume plenty of people live in Illinois and work in St. Louis. They are in St. Louis on a daily basis, and do there ’sin’ purchasing there. I agree people won’t go out of their way to avoid taxes, but how many people DO NOT have to go out of their way to avoid paying them?

    It’s a real b*tch when practicality interferes with public policy.


  11. - Calypso - Wednesday, Nov 15, 06 @ 5:55 pm:

    archpundit is right. Besides, anyone who still believes that the Laffer Curve works cannot be trusted to provide actual facts.


Sorry, comments for this post are now closed.


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