* From the GOMB’s five-year fiscal forecast…
As the cuts that would be required to bring Illinois’ budget to balance would harm education and human services programs and damage essential areas of the state’s economy, the Governor continues to believe that cuts alone cannot be the solution and revenue adjustments need to be considered as well. The Governor will work with the legislature to identify corporate and business tax loopholes that can be closed and tax adjustments that can be made that will minimize the impact to lower-and middle-class families while ensuring that Illinois can meet its financial responsibilities. Furthermore, the Governor will continue to work with the Congressional delegation to support additional federal funding to help Illinois bridge the loss of revenues brought on by the COVID-19 pandemic.
* People have been trying for years and years to close corporate loopholes. But since corporations played a major role in the defeat of the “Fair Tax,” there might just be an opening…
Also available is a range of less-draconian actions that might, in combination, generate enough revenue to fill the gap, if they survive the political gantlet.
A group of Democrats proposes closing corporate tax loopholes. Sales, use, income tax and economic development credits and exemptions totaled nearly $8.5 billion in the 2018 fiscal year. In a press release, 14 House Democrats say “all are on the table.” Rep. Mike Zalewski estimates an “aggressive approach” to cutting some of those could net $1 billion.
* And because of that effort over the years, we have plenty of ready-made research. This is from the Center for Tax and Budget Accountability…
Closing Corporate Tax Loopholes: $826.4 - $846.4 million
1. Repeal the Single Sales Factor - $96 million. Illinois changed its method for determining the corporate income tax, from a three-part formula to the single sales factor. Under the single sales factor, corporate income taxable in Illinois is determined solely on the basis of a company’s in-state sales. Under the prior method, in addition to sales, the value of a corporation’s property and payroll in Illinois were considered. Under the single sales factor, large, multinational companies who have a strong presence (facilities and employees) in Illinois, and are therefore the largest beneficiaries of state services, receive major income tax cuts. Small mom and pop shops, who principally make all their sales in the state, receive no benefit. According to a report issued by then Illinois Comptroller, Republican Loleta A. Didrickson, 32 companies were projected to gain at least $1 million per year in tax savings. The result, a net tax revenue loss to the state and local governments that the Illinois Department of Revenue estimated reached $96 million in FY 2001 ($63M state and $33M local) (This is the last year the Department of Revenue analyzed the loss to the state).
2. Reduce the Retailers Discount. The Retailers Discount was enacted in 1959 to reimburse businesses for the burden of computing and collecting the state sales tax that applied to their sales. Under the statute, retailers keep 1.75% of the sales tax they collect. While this discount served a legitimate purpose in 1959, its value is questionable today. With computerized collection and accounting systems prevalent, the cost of collecting sales taxes, especially for large retailers, is built into software packages and is negligible. Twenty-four states do not provide any discounts for sales tax collection. Of the 26 that still have these outmoded discounts, 10 have capped the maximum discount. Capping the Illinois discount at 1.75% of the first $1 million in sales is a practical solution. This preserves the discount for small businesses while greatly reducing the cost of this tax expenditure. This sensible change will save $80-100 million annually.
3. Eliminate public subsidies to the horse racing industry: Illinois currently gives this horse racing industry millions in tax breaks. Elimination of breaks would generate $48 million.
Other Corporate Tax Loopholes
• Newsprint and Ink to Newspapers and Magazines Exemption: $41 million
• Manufacturing and Assembling Machinery and Equip Exemption: $164 million
• Sales of Vehicles to Automobile Rentors Exemption: $43 million
• Enterprise and Foreign Trade Zone Dividend Subtractions: $2.4 million
• Enterprise and Foreign Trade Zone High Economic Impact Business Exemption: $37
• Timely Filing and Full Payment Discount: $28 million
• Trade-in allowance: $20 million
• Real Estate Investment Trusts – For tax years ending on or after Dec 31, 2008: $40
• Redefining “business income” to include all income apportionable to Illinois by the U.S. Constitution: $29 million
• Sales sourcing rules – for corporate income tax – replace cost of performance rule with market state approach for service industries: $40 million special industry rules (financial organizations/transit companies): $60 million
• Eliminate tax benefit of related party transactions (dividends from subsidiaries with no business substance/insurance premiums paid to capture insurance companies): $40 million
• Discharge of debt: $4 million
• Expense disallowance for exempt securities income: $25 million
• Withholding on non-resident partners/subchapter S shareholders: $4 millions
• Corporate Franchise Tax Amnesty: $25 million
Some of those were accomplished in the capital bill.
* And then there are these…
Closing Personal Tax Loopholes: $670 - $715 million
1. Create a means test for the Illinois tuition tax credit: There currently is no income limit on the Illinois tuition tax credit. As a result, relatively affluent taxpayers have received by far the most benefits from this tax break. Taxpayers with incomes of $50,000 or more per year accounted for 77% of the tax relief in 2004. Taxpayers with incomes of $100,000 or more accounted for almost 40% of the credit. Limiting the credit to families earning $60,000 a year or less would preserve the credit for low- and moderate-income families while saving the state $40-$45 million annually.
2. Subject pension income earned over $75,000 to taxation: Illinois is one of only three states that exempts all pension income from taxation. Low- and moderate-income seniors work to make ends meet, and subsequently pay taxes on their wages. Affluent seniors, on the other hand, do not have to work and also avoid paying taxes on their pensions. Exclusion of all pension income costs the state over $800 million annually in new revenue. Subjecting pension income over $75,000 to taxation would generate $200 million in new revenue annually.
3. Eliminate or means-test the Property Tax Credit: The Property Tax Credit costs the state of Illinois over $400 million a year. The credit primarily benefits wealthy homeowners, as only 20% of individuals earning $25,000 a year or less own a home. Creation of a means-test for this tax credit would preserve the benefit for low- and middle-income families while saving the state an estimated $200-$240 million annually.
4. Coordination of credits/exemptions: Multiple forms of tax credits/exemptions could duplicate policy purposes. Consolidating all of them into one credit/exemption could eliminate duplication and produce more targeted benefits. This could generate up to $200 million.
Other ideas are here.