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Yesterday, I told you that the rumored “gross receipts” tax on corporations was the most underreported story of the month. Well, today the State Journal-Register has a story and the Chicago Tribune editorialized in favor of it.

* SJ-R…

Illinois businesses are gearing up to fight what they believe will be an effort by Gov. Rod Blagojevich to raise billions of dollars for state coffers by taxing their gross receipts.

While agreeing they have no concrete information to go on, business organizations said they can’t wait until the rumor becomes reality before responding.

“It is so bad (of an idea), even if it is only a possibility, we have to be on top of it,” said Todd Maisch of the Illinois Chamber of Commerce. “We can’t wait until we are certain. Everything we are hearing points to that direction.”

Business groups believe Blagojevich might call for a gross- receipts tax when he delivers his budget message to the legislature March 7. Becky Carroll, spokeswoman for Blagojevich’s budget office, declined to comment Thursday.

* Tribune…

Here’s the best idea. […]

A 1 percent tax on gross receipts in Illinois–goods, services, the works–would raise more than $13 billion a year, according to a study for Houlihan’s office by Alma, Wis., consulting firm Program Analysis Inc. Illinois then could repeal the 5 percent state portion of the sales tax, which now gives Springfield $7.5 billion per year, and kill the $2 billion corporate income tax. The state would have revenue for a $3 billion education fund, plus about $500 million that could be directed to other needs or for other tax relief.

The breadth of its base would make the gross receipts tax a stable, growing source of money. Washington, Hawaii, Delaware, Ohio and Texas have extensive gross receipts taxes. Because it’s easy to compute and collect, many other states apply such a tax only to utilities or other specific industries. Illinois taxes its casinos on gross receipts minus winnings paid out to gamblers.

The downside: Because it touches every business in a production cycle, a gross receipts tax pyramids as, for example, a forester’s walnut tree becomes a sawmill’s lumber, which becomes a furniture-maker’s table, which becomes a store’s retail sale. Imposing a 1 percent tax at each step makes items manufactured in Illinois less competitive elsewhere–and, for that matter, could tempt Illinois manufacturers to buy cheaper components in other states.

That said, zeroing out the state sales tax would instantly make Illinois a more attractive place for consumers to buy their retail goods. Killing the corporate income tax would be another bonus for many (granted, not all) Illinois companies. And while a gross receipts tax appears to fall on businesses, you can argue that it’s factored into their prices and thus borne instead by the final purchasers.

Again, we don’t even know yet whether the governor will actually propose this idea. But now that the Trib has editorialized in favor of it, the “plan” is certain to generate more news coverage.

Discuss below.

posted by Rich Miller
Friday, Feb 9, 07 @ 8:20 am

Comments

Here’s the Nyberg proposal to fix the financial mess that is state and local gov’t:

Enact a federal single-payer health care system.

Once the feds pick up the cost of health care there will be much more stability in the cost of providing gov’t services at the state and local level.

There will be much less pressure to raise taxes from year to year and there could be substantial tax reduction on the front end.

Comment by Carl Nyberg Friday, Feb 9, 07 @ 8:40 am
Tribune is looking to not alienate their readers.

We all know the only fair way to do this is to get rid of property taxes in exchange for retail or income tax.
This would cause the wealthy counties in this state to go berserk. They are not going to let their tax dollars improve other less fortunate school districts.
This is all local politics and the tribune always sides with the wealthy.
Local business leaders should boycott tribune advertizing.

Comment by Anonymous Friday, Feb 9, 07 @ 8:49 am
All the Tribune wants is what we call standard operating procedure.Come up with a tax,say it is for a worthy cause,then when you get the money collected who ever has the clout in Springfield says where it goes.In this case the Chicago Democrats.So here would be the money the Chicago people need to fix their transit system.If they are hurting that bad instead of Daley wanting to take peoples guns he should be in Chicago rewriting his own towns tax laws to raise the money.I would go for a income tax raise if it went for schools and the deficit not for a mishandled CITY agency or new free for a vote program.We need to sell this transit or make it pay for itself.

Comment by DOWNSTATE Friday, Feb 9, 07 @ 9:04 am
Isn’t the gross receipts tax a cousin of the VAT, used all over Europe. And European economies are hardly going under. Plus, their tax revenues support a much wider and more universal set of human services including universal health care and free university education for all.

Even the ultraliberals in Illinois seem fearful of a truly progressive income tax. So even if the gross receipts tax is more regressive on lower income groups, it may be our best chance for state fiscal salvation.

Comment by Cassandra Friday, Feb 9, 07 @ 9:13 am
Cassandra, the Gross Receipts Tax is different than a Value Added Tax, because VATs only tax the *Value Added*, and the GRT taxes everything. ie If a baker buys flour for $5 and sells bread for $7, with a VAT he’s only taxed on $2. With a GRT, he’s taxed on $7. This is why a “low rate” of 1% is really not all that low.

I noticed the Trib article really did not having anything bad to say about HB 750 - type legislation. Their only criticism of it was that it had not already passed. HB 750 is good public policy, and we should give it another chance.

Frankly, I don’t think the Trib really understands what a GRT is, and they certainly don’t seem to understand what it would do to the Illinois economy.

Comment by Still an Idealist Friday, Feb 9, 07 @ 9:33 am
I love all these excited bloggers who think that if there was $13 billion dollars available to the state government everything would be GREAT!

Whose $13 billion do you propose taking?

I have a degree from Germany. I know how they do things there, because I studied government. Anyone selling you on the idea that a VAT tax is great or that a GRT tax is great or that how they do things there is like Disneyland - is a liar!

There are NO FREE LUNCHES. Everytime a governor opens his/her mouth and proposes another social program, they are spending YOUR money. They are tipping YOUR economy from free market to a state run market. LOOK at the situation in Western Europe - they are tanking economically thanks to the thinking coming from politicians who believe centralized government works. IT DOESN’T.

Since 1989 Socialism has been proven to be a dead end. The sooner you realize this and start making a free market work for you, the better off you will be. Stop pretending there are billions laying around this state for a bunch of nice guys to spend on you. Grow up!

Comment by VanillaMan Friday, Feb 9, 07 @ 9:49 am
VanillaMan - Amen

Comment by Dollar USA Friday, Feb 9, 07 @ 10:11 am
What VM said. Also, who really thinks the pols would cut the taxes that the Tribune suggests in exchange for the GRT? Not I.

Also, the Tribune looked at this purely from an educational funding standpoint. I don’t think they factored in the Governot’s plan for universal health care (and if they did with that figure of $500 million, that’s a pipe dream) and all the other populist programs he wants to institute.

“If you think health care is expensive now, what until you see what it costs when it’s free!” - P.J. O’Rourke

Comment by Anon from BB Friday, Feb 9, 07 @ 10:23 am
VanillaMan socialist democrats are all we seem to have right now running this state and hoping to run the country.They don’t realize that destroying businesses and corporations by tax burdens is destroying our economy.

Comment by DOWNSTATE Friday, Feb 9, 07 @ 10:27 am
We would have to move our company out of state. Not a threat, a fact. I will bet we would be traveling a road filled with others doing the same. If you want to be a socialist go live in a socialist country and quit trying to pretend your a democrat here.

Comment by leigh Friday, Feb 9, 07 @ 10:33 am
Less profitable businesses might lose under the GRT because they are taxed even if they lose money.

But ease of collection (which would reduce the effects of cheating) might be a huge benefit to Illinois taxpayers. I believe there are studies on reduction in tax cheating with respect to the VAT, and cheating was much, much lower under the VAT.

Comment by Cassandra Friday, Feb 9, 07 @ 11:05 am
Its a great idea — I hope the rumor is more than just that.

Comment by Number 8 Friday, Feb 9, 07 @ 11:35 am
Still an Idealist - The entire Tribune editorial series ripped apart HB 750 as being horrible. The entire focus of their series was that not another dollar should go to education UNTIL/UNLESS much needed reforms are made to how education is delivered. Nothing in HB 750 reforms anything with education delivery. All HB 750 does is raise taxes while completely ignoring the real problems with education. HB 750 doesn’t propose even one improvement to education other than more money. Anyone in favor of HB 750 has been bought off by the government employee unions, especially teachers unions. They don’t want any responsibility or accountability, they just want more money which is all HB 750 does. By all means, if you want the same declining educational system and want to pay more for it, then HB 750 is for you. Anyone serious about improving education will not back HB 750.

This gross receipts tax is, gross. Especially in an age of internet purchasing, we will see our economy stifled even more than it is. Unless all the surrounding states also put in a gross receipts tax, we can’t even begin to compare it with the VAT in Europe. And a GRT will make tax compliance harder, not easier. Many wholesalers and distributors currently don’t have to worry about sales taxes, but the GRT will give them another level of taxes to track and report.

When government takes more money out of the economy, through whatever method, it hurts all of us. Higher unemployment or less job growth, stagnant wages, bankruptcies, and even worse education since economic conditions are a bigger factor in education levels than the amount of money spent on education.

Comment by Jeff Trigg Friday, Feb 9, 07 @ 12:22 pm
If this goes through then it will shortly have to be followed by more state giveaway programs to help ‘working families’ because the price of almost every product that people need to buy will have to increase. What a great idea, Blago generating more ‘landmark’ programs he can attach his name to!

Comment by Anon Friday, Feb 9, 07 @ 12:31 pm
Those bashing “socialist democrats” here are really hilarious. Apparently they haven’t read about Connecticut governor Jodi Rell (yes, a REPUBLICAN!) who just this week proposed raising that state’s income tax to 5.5% to make education funding fairer in that state and pay down its pension debts.

Conclusion: Fiscal realism ain’t the property of any one party. And such a responsible plan will only pass - in Illinois or Connecticut this year as it did in Virginia two years ago - with a bipartisan majority. Let’s get together and get it done.

Comment by Reality Check Friday, Feb 9, 07 @ 12:52 pm
a GRT is far worse than a VAT is, pretty much everyone one I know from Europe hates the VAT, since has already been pointed out it collects taxes off everything not just the value added. So every good produced would be taxed at every stage of production passed of the entire value, not the change in value. While the ease of collect might make things more effective, it unlikely that it will out weigh the negative economic effects of the tax. It will raise the not only of goods sold in Illinois but of goods produced in Illinois for sale else where and it will encourage people when ever possible to buy goods from outside of Illinois.

I know there are a lot of people out there that love the idea of another tax on business and “making them pay their share”. Ultimately people will ended up paying he cost thou higher prices. While Western Europe isnt “going” under, growth in the those countries is lower most of the time than in the United States, they have on average higher employment and slower job growth. Is that what we want to remake Illinois into?

Comment by RMW Stanford Friday, Feb 9, 07 @ 12:59 pm
Yep. Rod isn’t raising taxes, personal income tax true to his “word”. He is just wanting to tax the crap out of everything else in Illinois. Jerk.

Comment by Papa Legba Friday, Feb 9, 07 @ 3:02 pm
From the Connecticut Department of Labor -
Does Connecticut have a Problem with Economic Growth?
By Pat McPherron, Ph.D., Economist, DOL

Summary:
“Connecticut’s position as the State with the highest per capita income may not be sustainable over the next generation. Of more immediate concern is the ability of the State’s firms to respond to the rapidly changing and highly competitive marketplace. Otherwise, in ten years, those same communities that are dead set against economic growth may be looking at flat earnings in a best-case scenario, and for government relief in a worst case.”

That is the reality. Not a bunch of obsolete eggheads circa 1974 pretending government can somehow run everything. Take a real look at the rotting economies in Western Europe, and you see the US economic growth rate so robust, within the decade we will have a standard of living TWICE that of France or Germany. They are falling behind further, and further.

Comment by VanillaMan Friday, Feb 9, 07 @ 3:06 pm
First, GRT assumes that a high percentage of companies makes a large profit. It continues the thought that “corporations” is a four letter word.
Second, State or National Healthcare is a horrible idea. Waiting 6 months for a routine procedure is rediculous (ie: Canada). Also, it becomes a game of “What am I entitled to?”, just like Medicare and Medicaid. Even if people don’t need a procedure, they will want it simply because it is at no cost to them, so why not???
1. Corporations already pay most people’s salaries, whether you work for them or the government receiving the taxpayer money.
2. Government is the most inefficient entity. Why give them more when they can’t handle what is already on their plates????

Comment by Middle of the Road Friday, Feb 9, 07 @ 4:32 pm
The furniture and bakery examples showing how product components are taxed along the way, the pyramid effect of GRT, underscores another problem. The effective tax rate will differ by industry. Hardest hit will be Manufacturing, as if this sector doesn’t have enough problems already. Illinois manufacturers will be at a price disadvantage vs. neighboring states. Just what we need.

New businesses which often operate in the red as they get started will have an additional burden.

Since there is a net gain in revenue, the measure is also inflationary.

Comment by nick Saturday, Feb 10, 07 @ 9:41 am
Jeff,
I am always intrigued by how you know so much about people, especially people you’ve never met.

In the instant case, I am interested in hearing from you exactly how I’ve been bought off by the government employees unions.

I have supported the 750 legislation since it was introduced. My reasons are very simple: it was the only option on the table.

I know our state needs to deal with our structural budget deficit. I believe many schools need more money. I believe property taxes are more oppressive than they need to be, and I know education funding is a major reason for that.

750 is imperfect, as is most legislation. But no leader, political or other has stepped up with another proposal, so I can’t evaluate and perhaps support theirs, no matter how good it might be. As I tell my many Republican friends, I would love to support the Republican proposal on this subject, because I’m sure it would be much better, but WE DON’T HAVE ONE.

I note no groundswell of support in the General Assembly for your idea on how to fix the school problem, so I don’t expect it to be enacted in the foreseeable future. So you support one that ain’t gonna happen, and oppose everything else that people bring up. No progress rather than an imperfect solution, huh?

Comment by steve schnorf Saturday, Feb 10, 07 @ 4:35 pm