* Press release excerpt…
In a recently released report by the Institute on Taxation and Economic Policy (https://itep.org/taxes-and-racial-equity/), Illinois was cited for “vast disparities in income across race and ethnicity” caused in part by “injustices” in the state’s revenue policies.
The Raise Up Illinois coalition will call for addressing these injustices by ending unfair state tax breaks and other advantages for big corporations and wealthy individuals so that Illinois can invest that revenue in housing, childcare, schools and other essential services crucial to an economic recovery from the pandemic that addresses the pre-existing problem of economic inequality in the state.
* So, I asked for their specific proposals…
Reduce Tax Exemptions and Advantages that Favor High-Wealth Individuals
1) Repeal the Estate Tax Exemption Increase - $98.7 million
IL increased the estate tax exemption from $2 million in 2011 to $4 million after 2013. Expanding a tax benefit to such a small group of the very wealthiest residents cost Illinois $98.7 million in FY 2020– lost revenue that cannot be justified on economic development or equity grounds. The state should repeal this expanded exemption and restore the $2 million exemption.
2) Close the Carried Interest Loophole - $1B
Illinois private equity partnerships and hedge funds earn an estimated $4.8 billion per year in income that is classified as “carried interest” and under-taxed. The Carried Interest Loophole is a federal tax loophole that benefits a small, but very wealthy and well-connected group of billionaires, who charge a fee for investing other peoples’ money – and call it “carried interest” to get a lower tax rate than kindergarten teachers and truck drivers. SB 2124/HB3476 establishes a “privilege tax” that recaptures the revenue lost through this loophole, providing an estimated $1 billion per year for for investment in schools, healthcare, housing, jobs and clean-energy infrastructure
3) Mark to Market (being determined)
Today, people pay taxes on stocks, bonds, and other assets only when they sell them. They do not pay annual taxes on the increased value of these assets, even as they may double or triple over time. The Mark to Market Tax would tax the increase in value of these holdings at the same rate as other income. The tax would apply only to Illinoisans with assets of over $50 million dollars in value. Stock and bond holders will pay it only when they see an increase in the value of their assets, as is currently likely since the stock market continues to rise even in the face of a historically deep recession.
Reduce Off-Shore and Domestic Tax Sheltering - Generates $250+ Million for FY22 Budget
1) Conform to federal GILTI provision and consider 50% of that income as really earned in the US.
The 2017 federal tax overhaul slashed the corporate income tax rate, but also enacted new anti-abuse provisions targeted at corporate tax planning that shifts reported profits to foreign tax havens or other foreign low-tax jurisdictions. One such provision is known as “GILTI,” which stands for Global Intangible Low-Taxed Income. GILTI uses a formula to identify suspiciously high foreign returns, half of which is then subject to tax at the federal level because that income is deemed to have been shifted. 12 states have already conformed to GILTI.
2) Tax income deemed repatriated under the Trump Tax Cuts at taxed at low rates
The 2017 TCJA deemed foreign earnings of US Corporations, which income was supposed to be taxed at 35% when repatriated, at a much lower tax rate. Taxpayers were also permitted to defer payment of this lower tax using a backloaded interest-free payment schedule. And so 75% of the deemed repatriation has not yet been taxed. Since much of these nominally foreign profits were really earned in the United States and shifted abroad, Illinois should tax 50% of the deemed repatriation that is still outstanding.
3) Shift from the Joyce to Finnigan model of combined reporting to combat domestic income shifting
Illinois currently uses the Joyce method of combined reporting, where nexus is determined separately for each member of a corporate group for certain purposes. This means a corporate group that is actually operating as one business could choose to organize its affairs so as to artificially depress the amount of income apportioned to Illinois. The Finnigan method treats the corporate unitary group as a single taxpayer for all purposes, which closes this loophole. 16 states already have the Finnigan method, which is more than half of the states that have combined reporting.
Decouple from Trump Tax Cut Bill’s Federal Opportunity Zones Provision [Estimate pending]
The 2017 Federal Tax & Jobs bill gave individuals and corporations three types of tax breaks if they invest in opportunity zone funds: (1) deferral of any taxes on capital gains invested into OZs until 2026 (2) lower capital gains tax rates if invested for 5+ years, even lower rates for 7+ years (3) no taxes on any capital gains invested for 10+ years. Due to these tax breaks, Illinois uses the capital gain amount left over after these tax breaks for state taxes, so these investors benefit from two tax breaks and the state loses potential revenue.
IL should decouple its own individual and corporate income taxes from the opportunity zone capital gains breaks to avoid subsidizing investments in opportunity zone projects located outside the state. IL should not forgo vitally needed revenue to subsidize out-of-state investments that will provide no benefit to the state’s economy. Decoupling does not eliminate IL’s participation in the opportunity zone program - it just means that the federal government will subsidize investments in IL opportunity zones with capital gains tax breaks, not IL.
Several states, including Alabama, California, Mississippi, and Pennsylvania, do not conform to the opportunity zone tax breaks because their personal or corporate income taxes do not automatically link to the federal provisions. Four states plus the District of Columbia have proactively decoupled, some partially. North Carolina and New York have fully decoupled for both the individual and corporate income tax.
Legislation has been filed dealing with all of these proposals. Bill numbers are in the links. A bit late in the session for this, but here are the groups behind the plan…
Chicago Teachers Union, SEIU HCII, Grassroots Collaborative, The People’s Lobby, Chicago Coalition for the Homeless, Workers’ Center for Racial Justice, Jane Addams Senior Caucus, Brighton Park Neighborhood Council, Illinois Coalition for Immigrant and Refugee Rights (ICIRR), ONE Northside, Illinois People’s Action, People’s Action, POWER-PAC IL, COFI, Indivisible Chicago, Jewish Council on Urban Affairs (JCUA)