Patience, please
Thursday, Nov 10, 2011 - Posted by Rich Miller
* Illinois Statehouse News makes a good point about the tax cut debate, including funding part of it for a couple years by decoupling from a federal tax law…
To pay for all of this lawmakers are looking at decoupling the state from a federal tax code that allows businesses to get deductions on capital investments all at once instead of over a series of years. […]
That move, however, would only generate $570 million in the first year and $354 million in the second year before disappearing. […]
There are other businesses that could use the money from decoupling more than CME and Sears, some argue. The state owes between $4 billion and $5 billion in overdue bills to state vendors, schools and small businesses that the state contracts will.
“They employ people (and) we are doing nothing here by way of paying any back bills,” state Rep. David Harris, R-Arlington Heights, said.
Advocates of paying off the state’s old bills say doing so would allow those owed to avoid furloughs, layoffs or even closing, thus keeping tax revenue from those workers and businesses flowing into state coffers.
* The House Revenue Committee met today for a brief hearing and then scheduled more hearings next week. The committee will meet Wednesday and Friday. The delay over finding a resolution to the tax cut package caused the House to add at least one more session day this month…
Before adjourning for the day Wednesday, House members were told the six-day veto session would be extended at least one day. The House has added Nov. 21 to its calendar.
* Charles Thomas reported last night that Terry Duffy might be softening his threats a little…
On Wednesday, CME’s executive chairman Terry Duffy backed off his earlier prediction that what happened in Springfield this week would determine whether his multi-billion dollar company would remain in Chicago where it began 163 years ago.
“My board will take as much time as necessary to deliberate where our future headquarters should be or not be,” Duffy told ABC7.
* Tribune…
Terrence Duffy, CME Group’s executive chairman, reiterated Wednesday that he cannot make any assurances as to what his board will do now regarding a future location of major operations. But he said his company would remain open to any Illinois proposals that emerge in the next couple of weeks.
“I expressed my disappointment, in that I was told for months now that we’d get an answer in this fall’s veto session,” Duffy said Wednesday evening after a brief meeting with Gov. Pat Quinn. “But as the governor pointed out to us, the fall veto session is not over if they are going to come back. So that was cute.”
The company continues to evaluate offers from other states, which he called “very economically appealing.”
But it’s not an overnight process, he said, adding that “it takes time to navigate something of our size.”
* Later in the ABC7 interview Duffy said this…
Legislative leaders would like to deal with the problem during a separate special session at the end of the month.
“So if that happens, then we will just make a decision, do we want to stay here and pay $158 million in corporate taxes, 6% of the bill and the number one taxpayer, or reevaluate taking the company somewhere else where it is an environment that respects and understands our business.,” said Duffy.
I’m told that at least one other state has upped its bid and meetings have been scheduled.
Duffy likes to say that his company has been in Chicago for 163 years, so why he can’t wait eleven more days for action seems a bit excessive to me, especially when he said in September that he could wait until January.
Then again, like most businessmen, he does seem raring to go to get something done right now. I don’t blame him for that. But the legislative process requires some patience. And eleven days isn’t really too much to ask.
- Team Sleep - Thursday, Nov 10, 11 @ 11:37 am:
Mr. Duffy claims his shareholders are chomping at the bit to get a deal done. Fine. But people who are wealthy shareholders are obviously smart enough to understand the legislative process - especially if they are Illinois residents. Legislation doesn’t just “happen”. It takes time. You can’t simply pass along such a massive tax break for one company and expect no one will want anything else. If Mr. Duffy’s firm is like others, there are probably a few very wealthy investors who hold a plurality or majority of stock. If that’s the case, perhaps Mr. Duffy should bring them down, too, and let them lobby members of the GA and Governor Quinn. I’m guessing many of the top shareholders are already political active, both in donations and lobbying for their own companies or interests.
- wordslinger - Thursday, Nov 10, 11 @ 12:22 pm:
Every once in a while, I like to ask:
What exactly would CME move?
They already said the trading floors stay. Alright, that’s thousands of traders staying, both those who do open-outcry and those who do electronic trading on the floor. They will have to be supported.
There’s the new co-location in Aurora. Duffy told Rich the other day that he’d walk away from that for a better deal.
Not anytime soon, he wouldn’t. That’s not some garden shed that you put up in an afternoon. It would take a long time and a lot of money to replicate.
Meanwhile, CME is aggressively marketing the Aurora location right now.
http://www.cmegroup.com/globex/trading-cme-group-products/co-location-services.html
What, again, are they threatening to move? Shouldn’t we get an answer before we give away the store?
- Regular Reader - Thursday, Nov 10, 11 @ 12:50 pm:
The issue is this: Does our tax code place an excessive burden on one company?
Whether Duffy is bluffing or not is a ridiculous gamble and a silly question. If CME is being taxed inordinately, take care of the problem.
- steve schnorf - Thursday, Nov 10, 11 @ 2:07 pm:
They do appear to be taxed inordinately under our current system, but the answer isn’t necessarily just reducing their taxes, it might include broader, revenue neutral revisions to the corporate tax structure. That is harder, but perhaps necessary.
- I Love Springfield - Thursday, Nov 10, 11 @ 2:26 pm:
I question whether it is Need or something else when it comes to the corporate threats news department.
According to my own quick internet search:
CME stock went public on Dec 6, 2002 and closed that day at $42.90.
On that day the Dow Jones Industrial Average closed at 8,645.
Today CME is trading around $262.
The DJIA is trading around 11,900.
CME stock is up 510 percent in that time period.
The DJIA is up only 37 percent in that time, at best matching inflation, before dividends.
If the rest of Illinois and America were doing as well as CME stock has for the last nine years, then the Dow Jones Industrial Average would be above 50,000.
If that were true, the State might have a (nearly) balanced budget, a (reasonably) healthy pension investments balance, and I doubt CME would be having this conversation with the State of Illinois. They are leveraging a tough situation for the State and the economy much more than a tough situation for them.
Yes, there was a time when CME stock was much higher than it is now, but still they are knocking it out of the park in the profits department, especially in comparison to the rest of the economy. They might still have leverage in this debate, but for certain they aren’t hurtin.
- Regular Reader - Thursday, Nov 10, 11 @ 2:39 pm:
I Love Springfield…
If profitable companies should be taxed more heavily, why tax CME disproportionately more than other profitable companies?
CME’s bearing a huge tax burden compared to Caterpillar, another very profitable company.
- Yellow Dog Democrat - Thursday, Nov 10, 11 @ 3:16 pm:
Building on the comments of my good friend Steve Schnorf and Rich’s lede, the discussion of statutorily mandated tax expenditures should take place within the Budgeting for Outcomes framework and CME and every other beneficiary of tax expenditures should meet the same rigorous requirements for demonstrating their Return on Investment that we require of education programs and human service providers.
- Yellow Dog Democrat - Thursday, Nov 10, 11 @ 3:30 pm:
@Schnorf - are they being taxed inordinately? At first glance, yes, but you could dig a bit deeper and argue that a better way to level the playing field is taxing all e-commerce and lowering the overall rate.
What i’d also like to know is what tax rate are they paying in these other states? Its one thing to argue that you shouldnt be paying taxes on the same transaction in illinois and california, but i havent heard that argument yet
Finally, i have to wonder who is handling the communications and outside game for CME? It might earn Duffy props from shareholders to be seen in springfield personally lobbying for the bill, but to the public it can look like a clout-heavy rich guy shaking down the taxpayers for a handout.
Don’t be surprised if you see clout stories in the next two weeks.
- I Love Springfield - Thursday, Nov 10, 11 @ 5:09 pm:
Regular Reader, I am back from doing one of my own not-for-profit activities… Speaking of profits, regarding the tax-cut and tax-fairness debate in Illinois, Caterpillar is not a good example to bring up. They also made some exit threats while making record profits from an Illinois base.
Corporate threats and deadline-setting on State legislators by corporate leaders claiming the shareholders are angry, even though profits are great, does seem like a poorly chosen public relations and governmental affairs strategy.
- Yellow Dog Democrat - Thursday, Nov 10, 11 @ 5:18 pm:
@regular reader - an excellent argument for stripping Cat of its tax breaks
- Its Just Me - Thursday, Nov 10, 11 @ 5:34 pm:
Rich, I’m sorry my friend, but this CME issue didn’t just pop up a few days ago. This is another clear example of our government leaders being unable to do their jobs. Theyve known about it for a long time. They don’t deserve any excuses. It is like the RTA doomsdays all over again. They set a deadline, do nothing, set another deadline, and do nothing again.
- hisgirlfriday - Thursday, Nov 10, 11 @ 5:35 pm:
OK the CME filing with the SEC for the 3Q says that CME has actually had an effective tax rate of 9.7 percent less in the first three quarters of 2011 than it had in the first three quarters of 2010. It also says the effective rate only went up 1.1 percent from 3Q 2010 to 3Q 2011.
http://www.sec.gov/Archives/edgar/data/1156375/000119312511304112/d231771d10q.htm#toc231771_2
Yet this legislation is supposed to be all about addressing how the corporate income tax increase suddenly added a way huger burden on CME? Huh?
- hisgirlfriday - Thursday, Nov 10, 11 @ 5:40 pm:
From that same report:
“In the first nine months of 2011 when compared with the same period of 2010, the decrease in our effective tax rate was primarily attributable to a change in state tax apportionment recorded in the first quarter of 2011. This change resulted in a reduction in our income tax provision of $118.1 million due largely to a revaluation of our existing deferred tax liabilities. Additionally, in the first quarter of 2011, we began marking to market our investment in BM&FBOVESPA which resulted in a $48.8 million reduction in valuation allowances on other unrealized capital losses previously reserved.”
What is this state tax apportionment reduction that occurred in the first quarter? Did the state already give CME some sort of break in the first quarter and they are back for more?
- oz - Thursday, Nov 10, 11 @ 10:33 pm:
I think Duffy should round up all his traders and hand out McDonald’s employment applications in Springfield and let’s see how that works out!
But seriously. The states obligations should be to pay it’s $4 billion to $5 billion dollars in overdue payments to vendors first.
If one falls behind on their mortgage the person certainly does not go to back to his/her employer and give them back money out of their check because the employer has given them a job while telling the mortgage company to take a hike. It’s insane.
We give into the extortion for jobs again and it will never end. Ever. When is enough, enough?
- Anonymous - Friday, Nov 11, 11 @ 8:09 am:
–OK the CME filing with the SEC for the 3Q says that CME has actually had an effective tax rate of 9.7 percent less in the first three quarters of 2011 than it had in the first three quarters of 2010. It also says the effective rate only went up 1.1 percent from 3Q 2010 to 3Q 2011.–
HisGirlFriday, you are introducing rationality and facts into what should be solely a ludicrous discussion as to how in these hard times the state’s first priority is to give these guys a tax break while the rest of us W-2 schmucks do the heavy lifting.
Where are your priorities?