* 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.
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.