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Pritzker plan opens legal door to 15.22 percent corporate rate
Wednesday, Apr 10, 2019 - Posted by Rich Miller * Current Illinois Constitution…
One idea behind that clause was to prevent the General Assembly from jacking up rates on corporations by making sure they’d also have to raise rates on individuals. The current corporate income tax rate is 7 percent (not including the Personal Property Replacement Tax), while the personal rate is 4.95 percent. That’s an easy-to-figure ratio of 7 to 4.95, so there’s actually a little cap space remaining. The corporate rate could legally be increased right now to 7.92 percent (plus PPRT). * From the governor’s proposed constitutional amendment…
Pritzker’s highest proposed individual income tax rate is 7.95 percent. The governor’s proposed corporate rate is 7.95 percent. But that 8-5 ratio amendment means the corporate rate could legally be increased to 12.72 percent, plus the 1.5 to 2.5 percent PPRT. That means the highest final corporate rate could go as high as 15.22 percent. Whew. …Adding… If they cap out, and I’m not saying they will, that rate would be the highest anywhere…
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- PublicServant - Wednesday, Apr 10, 19 @ 1:11 pm:
Opens the door? Who cares? Would 60 walk through walk through it?
- Rich Miller - Wednesday, Apr 10, 19 @ 1:13 pm:
===Would 60 walk through walk through it? ===
Given a choice between raising taxes on lower-to-mid income taxpayers and jacking up the corporate rate, what do you think Dems would do?
- OneMan - Wednesday, Apr 10, 19 @ 1:17 pm:
== Given a choice between raising taxes on lower-to-mid income taxpayers and jacking up the corporate rate, what do you think Dems would do? ===
Everyone here keeps pointing out how hard it is to raise taxes and how rate flexibility is nothing to be concerned about.
- Steve - Wednesday, Apr 10, 19 @ 1:17 pm:
It’s hard to argue with Rich on that situation.
- Grandson of Man - Wednesday, Apr 10, 19 @ 1:18 pm:
“Would 60 walk through walk through it?”
With elections every two years? That kind of gouging should be able to be defeated, if anyone would be foolish enough to try it.
- Rich Miller - Wednesday, Apr 10, 19 @ 1:19 pm:
===keeps pointing out how hard it is to raise taxes===
It’s hard to raise taxes on the vast majority of people. It’s a lot easier to raise taxes on corporations and high-income folks. That’s why the biz groups hate this plan so much.
- Chicago Cynic - Wednesday, Apr 10, 19 @ 1:20 pm:
Oh Cmon. His proposal is a 7.95% corporate rate. There are all kinds of things that could be done “legally” that don’t have a snowball’s chance in hell of happening. Is there any evidence of a secret plan to hike corporate rates beyond his proposal?
- Shytown - Wednesday, Apr 10, 19 @ 1:21 pm:
Ouch
- 19th ward guy - Wednesday, Apr 10, 19 @ 1:21 pm:
Small biz killer. The “replacement” tax bad enough. This would be the real “jobs tax.”
- Rich Miller - Wednesday, Apr 10, 19 @ 1:22 pm:
===Is there any evidence of a secret plan===
Nope. Just pointing out the legalities here.
- NeverPoliticallyCorrect - Wednesday, Apr 10, 19 @ 1:26 pm:
We will eventually see if a state can tax its way out of a fiscal death spiral. The Dems seem to think, and were elected on the basis of that belief, that they can. Good Luck
- Retired SURS Employee - Wednesday, Apr 10, 19 @ 1:26 pm:
But if that sentence is eliminated then the corporate rate would be unlimited.
- Downstate Illinois - Wednesday, Apr 10, 19 @ 1:27 pm:
I believe this is why it’s called a Jobs Tax.
- Donnie Elgin - Wednesday, Apr 10, 19 @ 1:28 pm:
So add the business interests, the wealthy and small government leaning voters and you start seeing problems for this CA at the ballot box.
- Rich Miller - Wednesday, Apr 10, 19 @ 1:29 pm:
===But if that sentence is eliminated===
That’s called looking at the bright side. lol
- Rich Miller - Wednesday, Apr 10, 19 @ 1:30 pm:
===will eventually see if a state can tax its way out of a fiscal death spiral===
California kinda did.
- wordslinger - Wednesday, Apr 10, 19 @ 1:30 pm:
The great majority of Illinois corporations don’t pay the corporate rate. Corporate income tax revenues are just 5% of GRF.
Still, Pritzker just handed opponents a club to hit him in the head with, and they will, often and hard. It’s an obfuscator’s dream screaming point.
Given that the corporate income tax generates a relatively small amount of revenue anyway, they should fix the language to get that max corporate rate down. It would be stupid to lose because of this.
- Chaz - Wednesday, Apr 10, 19 @ 1:31 pm:
***Oh Cmon. His proposal is a 7.95% corporate rate. There are all kinds of things that could be done “legally” that don’t have a snowball’s chance in hell of happening. ***
Right. With the pension systems going belly up and JB making all sorts of other promises it gonna happen.
- SSL - Wednesday, Apr 10, 19 @ 1:31 pm:
Nothing like threatening the masses that their employer may decide to leave town or cut headcount if JB’s plan is approved. I can see hear the ads now.
- Last Bull Moose - Wednesday, Apr 10, 19 @ 1:32 pm:
This is where an engaged Republican Party could play a role. Negotiate for an 8 to 5 ratio between highest and lowest rates and the same ratio for business taxes.
Support the progressive tax with these ratios built in. This makes future tax increases more difficult.
- SW - Wednesday, Apr 10, 19 @ 1:36 pm:
The corporate tax rate has very little relevance to any issue about corporate income tax revenues. Because of the way multi-state corporations apportion income to Illinois, they pay little in corporate income taxes in Illinois. The people that will ultimately suffer will be the middle class. A large percentage of the population pay no tax and in fact get more back then they pay in. Taxing the rich has its limitations. The only people left are in the middle. The rates going in mean nothing. They can always be raised. And the argument the middle class can effectively do anything by their vote is so much BS with a Democratic legislature.
- BoSox - Wednesday, Apr 10, 19 @ 1:38 pm:
I’m sure 60 will gladly walk through it. Then wonder where did all the jobs go? Last one out, please turn off the lights.
- Grandson of Man - Wednesday, Apr 10, 19 @ 1:40 pm:
“This is where an engaged Republican Party could play a role.”
We need good conservatives but instead get obstructionist anti-tax zealots, in entrenched and total or near-total opposition.
- Lucky Pierre - Wednesday, Apr 10, 19 @ 1:41 pm:
That giant sucking sound you hear is jobs, capital and businesses their employees leaving Illinois.
- histprof - Wednesday, Apr 10, 19 @ 1:42 pm:
I would just like to point out that the whole point of the early business corporation was to “tax Illinois out of a death spiral.” The Internal Improvement Act of 1837 ran headlong into the panic of 1837 and then almost a decade of depression. Illinois had taken on too much debt. The successive charters of the Illinois Central guaranteed a percentage of corporate revenue to the state in exchange for the charter and the land grants. And it worked! The I.C. helped pay off the massive debt, far exceeding, in relative terms, anything like what Illinois faces now. And now we have a lot more corporations and wealthy people to tax.
So in answer to the question at 1:26, yes, Illinois can once again tax itself out of a “death spiral.” I would also add that there is no other legal choice, but Rich has pointed that out over and over again. If they won’t hear it from Moses and the prophets, they won’t hear it from one risen from the dead.
- histprof - Wednesday, Apr 10, 19 @ 1:47 pm:
These are empirical questions. Certainly any increase in taxation will have some negative marginal effect. But the question is how much.
Please, cite a study.
We just get the same talking points about jobs moving South. Cite a study showing what percentage of population loss is attributable to job loss that in turn is attributable to tax rates.
And by the way, you have to offset for the fact that, for instance, booming universities actually bring people into a state. So in your anti-tax calculation, you have to adjust for that.
- wordslinger - Wednesday, Apr 10, 19 @ 1:49 pm:
For FY19, the GOMB estimates $2 billion in corporate income tax revenues. Total GRF revenues are estimated at $38 billion.
Two-thirds of Illinois corporations do not pay corporate income tax. Illinois Fortune 500 companies pay an effective state tax rate of 2.9%.
That’s a lot of learning to overcome the obvious obfuscation opportunity opponents have been given.
https://www.chicagobusiness.com/article/20140219/NEWS02/140219775/most-illinois-companies-don-t-pay-federal-or-state-income-taxes
https://www.chicagobusiness.com/article/20170428/NEWS02/170429866/how-much-do-illinois-companies-pay-in-state-taxes
- Rich Miller - Wednesday, Apr 10, 19 @ 1:52 pm:
===For FY19, the GOMB estimates $2 billion===
OK, so take that rate up to 12.72 and you get about $1.63 billion in new revenues. It’s not huge, but it ain’t chump change.
- Ducky LaMoore - Wednesday, Apr 10, 19 @ 1:52 pm:
I really hope that they adjust that maximum rate. It could be a deal killer. But at least it gives all the doomsdayers out there that have done nothing but support the downward spiral with endless spending that they don’t want to find a way to pay for a few good days.
- allknowingmasterofraccoodom - Wednesday, Apr 10, 19 @ 1:56 pm:
Yea, good luck with that one JB. Wait until your buddies hear about that idea.
- Anon - Wednesday, Apr 10, 19 @ 1:59 pm:
California?
Some of the most beautiful weather to be had in this country.
California rates in the midwest winters?
I would venture to guess though that many Illinois residents would trade a higher tax rate for California level property taxes.
The maddening thing about many on this board who only look at the income rate is the failure to see how high we are across the board, and that once the income tax rate reaches the levels many hope we will be in the top 2-3 states in the country in terms of overall (state/property/sales) in the country.
California is the tech capital of the world, and the parabolic rise in the market has flooded them with capital gains income beyond which a state like Illinois could ever dream.
Wait until the next downturn to see how enviable it is to have your state’s fiscal health entirely dependent on exponential market growth.
- Ebenezer - Wednesday, Apr 10, 19 @ 2:00 pm:
Note: Illinois uses single-factor apportionment, so Corps take taxable income times the percentage of *sales* in Illinois. So the high tax rate is a deterrent to sales, not to directly to employment.
Also note that most small and medium sized businesses are structured as pass through entities.
This explains why high corporate tax rates don’t have much impact on employment, but also don’t raise much revenue either.
- Yep - Wednesday, Apr 10, 19 @ 2:01 pm:
15% Yep that will bring business screaming into Illinois
- allknowingmasterofraccoodom - Wednesday, Apr 10, 19 @ 2:03 pm:
=That’s a lot of learning to overcome the obvious obfuscation opportunity opponents have been given.=
Here is some learning - the majority of “corporate” taxpayers are small business. Like me, who owns a small business with 2 full time employees, and one part time. I just got hit with the SALT tax hit from the Feds. Now I will be hit with an increase in the personal income tax, and next will be the new corporate tax increase.
My business brings me a little over 200K in income. My wife works so we will be totally taking it on the chin.
And we ain’t wealthy either.
In fact, in the Chicago area, a teacher and a fireman easily earn over $250K, and are taking it on the chin as well.
I don’t mind paying my fair share, but tell me how it is JB, don’t give me the same song and dance.
- wordslinger - Wednesday, Apr 10, 19 @ 2:04 pm:
–OK, so take that rate up to 12.72 and you get about $1.63 billion in new revenues. –
Understood. But I suspect keeping the 8 to 5 ratio based on the top individual rate could kill the whole deal. It’s a heavy lift in the House as it is, with virtually no wiggle room.
It sure as heck is going to open a whole new line of attack.
- Grandson of Man - Wednesday, Apr 10, 19 @ 2:07 pm:
The federal corporate tax rate was slashed 14%, resulting in a substantial loss of corporate tax revenue, record deficit and spiraling debt. But there’s no hysteria from the hysterical deficit and debt hawks, no gloom and doom like we’re seeing with the fair tax proposal.
- El Conquistador - Wednesday, Apr 10, 19 @ 2:09 pm:
Oh no. It looks like the ILGOP was right and the Dems are goiuto tax business out of existence….
If they’d only participate on reasonable bill improvements this wouldn’t even be a story. It’s far better to freak Out and spread panic and misinformation than to cooperatively work on legislation to solve problems.
- Grand Avenue - Wednesday, Apr 10, 19 @ 2:13 pm:
Is this what is being called the Jobs Tax, or is the whole shebang being called the Jobs Tax?
- Fav Human - Wednesday, Apr 10, 19 @ 2:22 pm:
Corp tax rate
A feast for lobbyists and accountants.
I wonder how long it will be before their are more (loop)holes than a Swiss cheese factory…
- wordslinger - Wednesday, Apr 10, 19 @ 2:22 pm:
–That giant sucking sound you hear is jobs, capital and businesses their employees leaving Illinois.–
I’m pretty sure it’s the quality of your posts.
If you’re in the great majority of businesses that don’t pay corporate income taxes, the rate means oogats.
It’s the one-third that can’t get on that S Corporation or LLC train and that derive all their income in-state that are in danger of a huge bump (sounds like somebody I know…..)
- Chicago Cynic - Wednesday, Apr 10, 19 @ 2:30 pm:
And this thread is exactly why I responded as I did initially. This is an “oh cmon” kind of moment which brings out all the professional obfuscators who love the headline on this post. No need to make it quite so easy for them.
- Andyillini - Wednesday, Apr 10, 19 @ 2:31 pm:
=California kinda did.=
That’s a good point and worth considering. The question would be if not having Silicon Valley in your state changes your ability to do it.
- Nonbeleiver - Wednesday, Apr 10, 19 @ 2:37 pm:
Even discussion of this increases the odds that there will be an all out campaign against this graduated tax.
Yea, I know, it was going to be strong anyway but this elevates it to a new level.
If all of this were not so serious it sure would be fun to watch.
- Thomas Paine - Wednesday, Apr 10, 19 @ 3:00 pm:
Indiana has no such language tying the corporate tax rate to the personal tax rate.
If I were JB, I would let this one ride out a few weeks, and then “cave in” to the business lobby by striking that sentence.
In the meantime, I think that raising corporate taxes is even more popular than a millionaire tax. If I were Democrats I would just suck it up.
- Captain Obvious - Wednesday, Apr 10, 19 @ 3:02 pm:
And most corporate tax payers, being small businesses will also be paying a much higher minimum wage to their employees, so they got that going for them, which is nice…
- Anon - Wednesday, Apr 10, 19 @ 3:07 pm:
All of this could be solved by building in some brakes to the process that would make people feel more comfortable that 2-3 years from when it is passed and the revenue’s don’t match the new spending levels that they won’t be raising rates and lowering the 250k threshold.
This is going to fail if you don’t convince the skeptical (based on Illinois spending history and mismanagement of revenue) 100-200k professional class who aren’t affected now that they have nothing to worry about down the line as the definition of wealthy inevitably creeps downward when the budget gets tight.
It is the next logical step when it becomes clear that the top 3% alone can’t carry the entire spending burden of the state.
Those folks know that day is coming, so to avoid them deciding it’s not worth the risk in the future you have to build in safe guards some how.
Anyone dedicated enough to read this blog knows there is no way the proposed rates solve the problem, so in the absence of being able to go higher on the top rates again “broadening the base” paying higher rates becomes the order of the day.
Convincing the upper middle class they aren’t next will determine the fate of this getting 60% at the ballot box.
- Maywood John - Wednesday, Apr 10, 19 @ 3:55 pm:
This is the constitution we’re talking about. Lots of things are left open by the constitution, and should be, but that doesn’t mean they’ll automatically happen. What the state does with it depends on politics and leadership. Wealthy, biz groups, small government folks, all need to win their arguments in the arena, not stack the deck with guarantees in the constitution. This provision puts Illinois in the mainstream with its toolbox for state finances. It will still be very hard to raise taxes, as it should be. The opponents will still have all the money and a very centrist electorate. BTW. whatever CA did with its taxes, you can’t argue with its economy or in-migration of people with money.
- Skeptic - Wednesday, Apr 10, 19 @ 4:09 pm:
“15% Yep that will bring business screaming into Illinois” If the State’s economy starts booming, you bet they’ll be screaming to move here.
- City Zen - Wednesday, Apr 10, 19 @ 4:31 pm:
==whatever CA did with its taxes==
Placed them on the warm sands of Coronado Beach.
- An American - Wednesday, Apr 10, 19 @ 4:33 pm:
I’m just going to leave this here… for reference.
https://illinoiscomptroller.gov/financial-data/state-revenues/income-tax/
Type Amount
Individual $15,920,018,978.81
Corporate $2,697,791,145.70
Personal Property Replacement $1,008,885,093.97
- Rural Survivor - Wednesday, Apr 10, 19 @ 4:52 pm:
Taxpayers that are at or above the SALT limit on their Federal taxes should be very concerned. Our state still hasn’t started to pay down the pension obligations. It’s going to take a lot more money when our politicians finally decide to pay that bill.
- BCOSEC - Wednesday, Apr 10, 19 @ 5:11 pm:
I see reference made to S corporations not paying State of Illinois corporate income tax and replacement tax.
S Corps do pay Illinois corporate and replacement taxes on Illinois income. They don’t pay federal income taxes.
- BCOSEC - Wednesday, Apr 10, 19 @ 5:16 pm:
I goofed. Edit.
S corps in Illinois pay replacement taxes and franchise taxes.
- DeseDemDose - Wednesday, Apr 10, 19 @ 5:47 pm:
It will be quite a while before Illinois voters take any Republicans serious or believe a word that comes out of their mouths after 4 years of of their support of Rauner.