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Most underreported story of the month

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The lead story in Capitol Fax yesterday was about widespread rumors that the governor will call for a “gross receipts tax” on Illinois business to pay for all of his ideas. Business lobbyists are gearing up like crazy to fight the idea, which the governor’s office won’t confirm even exists.

I didn’t notice yesterday that Small Newspapers also had a very good story on this topic until the reporter pointed it out to me. So, here it is…

Gov. Rod Blagojevich is reportedly considering a gross receipts tax on Illinois businesses to pay for a plan to provide state-subsidized health insurance to state residents without coverage. […]

Depending on its final form, a gross receipts tax could hit every business in the state, from barbers to manufacturers. The barber, for example, would pay the gross receipts tax on whatever he took in, likely apart from any income tax he might have to pay.

Even if the business was losing money, the gross receipts tax could apply.

Business lobbyists contend a gross receipts would be passed to consumers, and in the case of manufactured products could add significantly to the cost of finished goods.

“You could go from your raw material to your final product and it could get taxed five times in-between.” said Kim Maisch, Illinois director of the National Federation of Independent Businesses. “The concept of a gross-receipts tax is really anti-free enterprise.”

The tax revenue estimate I heard earlier this week was over $9 billion a year.

Thoughts?

posted by Rich Miller
Thursday, Feb 8, 07 @ 9:04 am

Comments

If a gross receipts tax is superior to an income tax or a sales tax, why isn’t Illinois using it already? Why aren’t other states?

If the tax makes less sense than the sales tax or income tax, does it make sense to enact it just so a politician can say, “I didn’t raise the sales tax or the income tax”?

Comment by Carl Nyberg Thursday, Feb 8, 07 @ 9:10 am
Wow, read the comments following the linked article, too. Looks like they ain’t forgetting in Forgotonia.

Comment by If It Walks Like a Duck... Thursday, Feb 8, 07 @ 9:14 am
The article in Small Newspapers presents only the negative side of the gross receipts idea, and printed comments only from the “business community.” Given that our current business taxes are inefficient and idiosyncratic (for example, how many businessess actually pay any/substantial state corporate income taxes?), and that our sales tax applies to only the sales of goods, which is a declining sector compared to services, why shouldn’t we consider an alternative system of taxation? Many other states are–recently Ohio instituted a form of gross receipts tax, and they are under debate in other states–and several states already have gross receipts taxes, instead of corporate income taxes. Some also have a sales tax and some don’t. The point is that the powerful business lobbies have a vested interest in painting the most negative picture of this, without any analysis of actual impact. A low rate gross receipts is unlikely to result in prices that are 10-15% higher–and a rigorous economic analysis would be required to verify any tax impact assumptions.

Comment by Voice of Reason Thursday, Feb 8, 07 @ 9:15 am
All the increases on small businesses the last 4 years,high rates on comp insurance,almost double utilities and now a special tax.Two questions!How many small business owners will throw in the towel and how many corporations will find it cheaper to move out of state.This current bunch of Democrats want to crate a welfare state to increase votes for the party but it soon becomes a liabity.Didn’t their parents teach them that ‘nothing is free.

Comment by DOWNSTATE Thursday, Feb 8, 07 @ 9:29 am
Indeed, nothing IS free, including education, transportation infrastructure and health care–all of which benefit the public good and not only select individuals.

A gross receipts tax can be structured so that it exempts the first $000,000 of receipts, in order to protect small businesses. And in addition to considering the elimination of the corporate income tax, the state could rescind some of the fees that have distortionary economic effects.

NO ONE wants their taxes to go up, for any reason. That is why government is not the “private market” since in that case the public good is not served by purely individual best interests.

Comment by Voice of Reason Thursday, Feb 8, 07 @ 9:34 am
This is a disgutingly-regressive tax idea, one so bad that I wouldn’t even expect it from the most rabid Republicans around, much less an alleged Democratic progressive like Gov. Sleazy.

Comment by fedup dem Thursday, Feb 8, 07 @ 9:38 am
Desperation is the mother of all chaos.

Perhaps they could tax campaign contributions and bribes as well.

Comment by Truthful James Thursday, Feb 8, 07 @ 9:39 am
Truthful James has a point. Why wouldn’t contributions to a political campaign fund be considered part of gross receipts? (Methinks the Governor just blanched…)

Comment by Commonsense in Illinois Thursday, Feb 8, 07 @ 9:59 am
The last thing Illinois needs is another tax.

Blagojevich knows this. That is why he has been promising no new taxes.

This administration is driving away businesses and forcing up the cost of living. This is bad government.

Stop promising freebies for votes. Start governing like adults.

Comment by VanillaMan Thursday, Feb 8, 07 @ 10:12 am
Would that include contract lobbiest gross receipts? Hmmmm.

Comment by FESTER Thursday, Feb 8, 07 @ 10:14 am
Reason, your logic would be more convincing if the gross receipts tax was part of a simplification package that was revenue neutral.

But as proposed it sounds like a way for the Blagojevich administration to get $9 billion/year in new revenue while being able to claim “no increase of sales or income taxes”.

Comment by Carl Nyberg Thursday, Feb 8, 07 @ 10:35 am
This sounds like a value-added tax.

Bad idea, especially for the Dems. The people that will be most hurt by this tax are the ones that can least afford goods and services.

Just another reason why I’m planning to leave the state after I get my grad degree…

Comment by Anon from BB Thursday, Feb 8, 07 @ 10:54 am
Sounds like A PLAN!!!

Comment by Bill Thursday, Feb 8, 07 @ 10:59 am
This a flat out bad idea for the state, Illinois has over the Blagojevich term has developed an increasingly hostile climate to business, this will just add to it and hurt economic and job growth here . Its one thing to tax business on there profits, but its another thing to tax them on their revenues, so that business that do not earn a cent in profit and suffer loses will also have an added tax liability. I am going to guess that the plan is to add this tax on top of the sales and corporate income tax. In the long run taxes are paid by people, not by firms, even if the tax results only in a prices increase of 105-15%, what would ended being a 10%-15% across the board price increase for business in the state Illinois would have the effect of lowering the real income of everyone in Illinois, rich, middle class and poor likely. Would have the large effect on the poorest sections of society, who spend almost all of their income on goods and services and in turn would see their real income decline by more than the middle and upper class who usually save and invest some of their income.

Comment by RMW Stanford Thursday, Feb 8, 07 @ 11:23 am
Wow. Some plan.

“Let’s stick it to the businesses who serve the people so we can say we’re not sticking it to the people we say we’re serving.”

Business as usual.

“Bill”: I admire your steadfast loyalty, but Stevie Wonder could see through this snake-oil salesman.

Q: What’s the chief physical difference between Blago loyalists and blind people?

A: Blind people have souls.

Comment by This Guy Thursday, Feb 8, 07 @ 11:29 am
A way around this is to not make anything in Illinois and only pay the tax when it finally comes to the state in the form of a finished product for sale. A gross receipts tax will be at a very small percentage, usually under 1%, so that should avoid a heavy increase in the final price of a certain product. Also, the higher the price of a particular product that has this tax hidden in the final price, the more the state sales tax will bring in. Unless you’re captive to buying products entirely made and sold in this state, it would be cheaper to just buy it in another state or only buy products in this state made in another state. But who really knows what those are. Go by the retail price.

Comment by anon Thursday, Feb 8, 07 @ 11:34 am
The hard cheese is taxing businesses who are losing money already. At the margin a restaurant going out of business as it tries to build it revenues over time to breakeven, is going to put people on the street.

Comment by Truthful James Thursday, Feb 8, 07 @ 11:58 am
“A way around this is to not make anything in Illinois and only pay the tax when it finally comes to the state in the form of a finished product for sale”

It will certainly encourage that, along with encouraging firms and consumers to make large purchases in neighboring states, instead of in Illinois. As it already been mention this will push business that are at the margin and trying to build up a costumer base out of the market and may well make some business that have a lower profit margin, unprofitable. This will be flat out bad for the state’s economy and the poorer sections of the state populace will be hit the hardest.

Comment by RMW Stanford Thursday, Feb 8, 07 @ 12:05 pm
I’d love to see if this will apply to agriculture in Illinois. If it does, farmers are going to be hit hard. Farmers take in a lot of revenue, but don’t necessarily make a large profit due to the large costs involved. This idea will destroy rural economies, as farmers can hardly ‘move’ their land out of Illinois.

Who else will this not apply to as well? Whoever can cough up the most cash?

This idea may be just what the Republican Party needs in Illinois. Business groups will all get together and fight this with furor.

Comment by Gene Parmesan Thursday, Feb 8, 07 @ 12:09 pm
Indiana, Wisconsin, Iowa, Missouri and Kentucky all support this idea. They welcome all the Illinois businesses that will be coming to their states!

Comment by Love the madness Thursday, Feb 8, 07 @ 12:16 pm
Voice, all good points. But..first what’s the chances they will structure the bill with the protections for the small business’. Secondly, retail has shrunk, especially near the boarders. Why do we think that service businesses wouldn’t follow. My doctor moved a few blocks over the boarder because of insurance reasons. Now my mechanic, accountant,masseuse ect. will follow.

Comment by Utility Infielder Thursday, Feb 8, 07 @ 12:48 pm
Gentlemen (and ladies):

We are all wrong.

The most underreported story has to do with the removal of pork from the budget on a large scale, the development of efficiencies in government operations, the use of increasing sales and income tax revenues (resulting from the Bush tax cuts) to be assigned to capital and pension funding rather than hiring more people.

Didn’t hear about that? Neither did I. Which must be why it is clearly underreported.

Comment by Truthful James Thursday, Feb 8, 07 @ 12:56 pm
…”a plan to provide state-subsidized health insurance to state residents”… - If the state is going to provide health insurance then businesses would be well served to discontinue providing group plans. Shift the entire health costs to the taxpayers ? The governor is STUPID ! Like a little boy playing with matches . . . or in his case, himself.

Comment by Citizen A Thursday, Feb 8, 07 @ 12:57 pm
It is pure insanity. It is an invisible sales tax, and I just bet Bill won’t understand why his $10 haircuts turn into 12, or 15 bucks. He will probably blame it on business.

Comment by Lovie's Leather Thursday, Feb 8, 07 @ 1:09 pm
This is Mr. “No New Taxes”, right? Now that Rod’s $9 billion tax increase on businesses and consumers is floating around out there, the more modest education funding reform plan that includes property tax relief and closes our pension debt must look pretty good to the business community.

Comment by Yellow Dog Democrat Thursday, Feb 8, 07 @ 1:13 pm
The gov should have his numbers guys at CMS and BOB figure out how much $$$ businesses need to cover their costs and then simply confiscate the rest. That apparently is the democrat master plan, both state and federal. Just DO it and put a stop to this drip drip drip chinese water torture approach to “governing”.

Comment by Citizen A Thursday, Feb 8, 07 @ 1:18 pm
Governor Foolish Ultimate Politician of Madness.

Comment by i d Thursday, Feb 8, 07 @ 1:26 pm
Citizen A –

That was the old Ted Kennedy plan…The government has the right to 100% of GNP and all taxes thereon. Then it can decide whhat part of the national income may be delivered to its citizens. It really is simpler that way.

Comment by Truthful James Thursday, Feb 8, 07 @ 2:03 pm
What happens when there are no businesses left to tax? Don’t worry, Governor Blagojevich won’t, he’ll be long gone.

Comment by Guy Fawkes Thursday, Feb 8, 07 @ 2:58 pm
I think Bill is right. If it is proposed by the Governor, it at least represents a plan; in fact, the only plan. Perhaps it will elicit counter-proposals or alternatives from some of our other leaders. Until Meeks re-introduced 750 today (so I heard) not another government leader had suggested any plan to deal with our structural budget imbalance.

Comment by steve schnorf Thursday, Feb 8, 07 @ 3:00 pm
Steve –

Thanks for admitting that 750 is not a supposed tax swap, but merely a way to increase taxes for a supposed structural imbalance.

Still looking for the unreported stories to which I earlier referred.

When a “balanced budget” can be adopted and specific appropriations do not include the windfall each year from increasing income and sales taxes, it would seem that the structural imbalance lies on the side of surplus — until, that is, the covert appropriations using up all that surplus are made to benefit the governor playing Johnny Appleseed, and the incumbents providing much quid for a future quo.

Comment by Truthful James Thursday, Feb 8, 07 @ 3:24 pm
Wow, hit the small business owners with increases in the minimum wage and then with this, we’ll be seeing more empty shops & restaurants.

Comment by Concerned Voter Thursday, Feb 8, 07 @ 3:33 pm
Didn’t Laura Lunt Prussing, the Dem. one term state rep.from Champaign have an idea like that or taxing about everything in sight a few years ago?

Comment by the old republican Thursday, Feb 8, 07 @ 7:17 pm
Maybe we don’t need a PLAN - Just don’t spend the state into poverty! This is Blago’s crisis - without him we might not be in such a terrible financial delemna. Hope Mike and Emil have the balls to reign in this megalomeniac. God help us if they don’t. Blago is NOT the solution - he IS the problem.

Comment by Citizen A Thursday, Feb 8, 07 @ 7:20 pm
We don’t need a new tax. If the state would collect sales tax on magazines and newspapers,we
would have plenty of $$$$$ for education. Then we
wouldn’t have to sell the lotto and tollways. All
the states that are contiguous to us charge sales
tax on those two items. Just think of all the
magazines that are sold daily, the subsriptions
and all the papers. Mega millions !!!!

Comment by Nostradamus Thursday, Feb 8, 07 @ 8:33 pm
Wow, beware the progressives.

Comment by Bill Baar Friday, Feb 9, 07 @ 7:02 am
Gross receipts taxes are discredited taxes that are making a comeback solely because they allow a state to hide the tax burden, either by embedding it into business to business transactions or by using the gross receipts tax to collect revenue from “outsiders.”

Gross receipts taxes used to be very widespread but most states repealed them (including Indiana as recently as 2002) because they were so harmful.

These two articles contain numerous economic reasons why they should be rejected:

http://www.taxfoundation.org/publications/show/2180.html
http://www.taxfoundation.org/publications/show/2061.html

Comment by Concerned Taxpayer Friday, Feb 9, 07 @ 7:59 am
Cool!

Comment by Aris Tuesday, Jun 5, 07 @ 4:42 pm
Nice…

Comment by Augustinos Tuesday, Jun 5, 07 @ 8:28 pm
Cool.

Comment by Georges Thursday, Jun 7, 07 @ 2:24 pm