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* The setup…
A new study says that taxing services such as haircuts, plumbing repairs and storage facilities could generate more than $7 billion for Illinois’ depleted budget.
The Commission on Government Forecasting and Accountability, which provides revenue forecasts for the General Assembly, estimates that up to 100,000 businesses could be affected by adding such a tax, which is used in other states but is sparingly deployed in Illinois.
From the study itself…
• In 1975, money spent on services made up approximately 46% of total consumer spending. By 1995, money spent on services had grown to 58% of consumer spending. Service spending has remained around this rate since then. In 2008, consumers spent over $6.0 trillion on services in the U.S.
• Similarly, the Illinois service sector has been growing in recent decades. In 1977, service related industries accounted for approximately 32%, or $37 billion, of the $115 billion Illinois economy. The service sector accounted for $271 billion (43.9%) of the $617 billion Illinois economy in 2007.
• Illinois’ economy is more dependent on services than the other Great Lake states primarily due to the increased importance of the 1) Finance and Insurance industry 2) the Professional and Technical Service industry, and 3) the Information industry in Illinois.
* The Question: Should Illinois impose a broad tax on services? Explain fully, please.
posted by Rich Miller
Tuesday, Sep 8, 09 @ 12:10 pm
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yes. This is a better way to generate revenue then an income tax increase IMHO. Generally it impacts people as they aquire/use services. it picks up money from those operating on a cash basis or who may be concealing income, and those visiting the State etc.
It is not a perfect system, but picking up revenue this way based on comsumption and use of services I think works better then a regressive income tax. Thiose with more money tend to be larger consumers of services from my observations, so they will pay a proportionate amount based on the use of those services.
Comment by Ghost Tuesday, Sep 8, 09 @ 12:23 pm
Yes, hands down.
Economic growth and activity is largely in the service sector, so our tax structure should reflect that. Also, a broader-based tax structure is a more stable one.
As for possible arguments against it, our neighboring states already do it, so the competition argument is moot. And although sales taxes are regressive, the types of services not now taxed are mostly discretionary if not purely luxury services so the burden will fall on those with more disposable income.
Plus, the state really needs the revenue.
Comment by Reality Check Tuesday, Sep 8, 09 @ 12:24 pm
No, not until it becomes the norm with states. It would dramatically hurt the Illinois economy. The service sector is largely mobile; many services could be easily provided business-to-business from locations other than Chicago or elsewhere in Illinois. Once Illinois loses its place in the service economy, it will be hard to reclaim it even after services taxes become more the norm. Illinois would be wise to avoid being a pioneer in new taxation.
Comment by anon Tuesday, Sep 8, 09 @ 12:25 pm
I hate to “split hairs,” but these taxes will not “plug” the state deficit. To stop the “leaking” resources, let’s get rid of Blago’s boys and girls (BTW: Hot Rod wouldn’t tolerate any tax pertaining to hair). Let’s put his cronies in permanent “storage,” then we can talk of saving the state some real money. Let’s not “wig out” on this issue, but give the old administration a “crew cut” to balance the budget.
Comment by If It Walks Like a Duck... Tuesday, Sep 8, 09 @ 12:25 pm
Stick to the question, please. And what’s up with the goofy air quotes?
Comment by Rich Miller Tuesday, Sep 8, 09 @ 12:27 pm
nope
Just another way to increase revenues without changing spending habits.
Can you imagine how many new people would have to spend time filling out the forms and sending in money every month?
Comment by Plutocrat03 Tuesday, Sep 8, 09 @ 12:30 pm
I prefer a progressive income tax. I don’t like use taxes and sales taxes because they are regressive and unpredictable (what good or service is next?) I don’t buy the argument that the wealthier you are the more you consume nor do I buy the argument that a progressive income tax will be too easily avoided by those concealing income.
Comment by old pol Mike Tuesday, Sep 8, 09 @ 12:31 pm
Service businesses are generally small businesses, and I don’t like to over-burden them with this when they are already having to take sizeable hits for insurance, minimum-wage raises, other needed regulations, etc.
Small business is the real economic engine in Illinois today. They just don’t have the corporate mega-money to hire the lawyers and PR flacks like the big corporations do. Not sure you want to reduce their margins, which are pretty small. And small business start-ups are the first and earliest places new economic stimulus comes from, and it happens locally, where it means the most. For all those reasons, I’m down on the idea myself.
I would perhaps go for it if there was a cutoff at a certain size, below which the business didn’t have to pay it, or a time factor where you don’t pay it in your first ten years. If a small biz makes it ten years, they’ll last long term and can handle the extra drain. But don’t hit them with added costs just as they are starting out, you just kill the plant before it can take root.
Meanwhile, if they can afford to stay afloat, these businesses are just going to pay the tax out of increased customer prices. Why not reduce the friction and efficiency loss in that and get the money direct from the consumers? They seem to be paying it either way, aren’t they?
Comment by Gregor Tuesday, Sep 8, 09 @ 12:35 pm
I agree with old pol Mike. This kind of tax would be another burden to the middle and lower classes that rely more on repairing items than replacing them.
Comment by Small Town Liberal Tuesday, Sep 8, 09 @ 12:37 pm
No. Cut spending on non-constitutionally mandated services/programs.
Comment by North of I-80 Tuesday, Sep 8, 09 @ 12:44 pm
No, though it would increase revenue today, it would make Illinois an even less attractive place to live and establish a business. I think a state that’s overburdened with taxes and fees will fare worse in the long run.
Comment by Sewanee Tuesday, Sep 8, 09 @ 12:49 pm
The biggest challenge will be service industries implimenting the ability to pay such a tax- it will become a pass through for hairstylists,e tc- the increase will come out of their tip revenue.
But consultants, etc- will directly pass it along.
It is a better solution that an income tax increase.
Comment by Inish Tuesday, Sep 8, 09 @ 12:51 pm
Yes, for all the reasons Reality C. cites. says, plus they are easier to collect than income taxes (service taxes are much less complex than income taxes…and much cheaper to collect).
But doesn’t this service tax sound a lot like…the GRT. Didn’t Blago try that already, with disastrous results. I suppose Quinn could try, as the lesser of two evils, but he seems wedded to that regressive income tax increase on the middle class. And he needs contributions from the business community to get re-elected. I say, not happening this year.
Comment by cassandra Tuesday, Sep 8, 09 @ 12:53 pm
Yes, coupled with an increase in the income tax, extending the sales tax to services would produce enough revenue to pay the state’s debts, provide necessary services, and have enough left over for property tax relief. This is what we have needed for the last decade or so. Our tax burden would still be less than neighboring states.
Comment by Bill Tuesday, Sep 8, 09 @ 12:55 pm
Yes. We hear pols wax poetic about structural deficits and the like, and here’s an idea that could actually bring in revenue without disproportionately affecting those of less means. However, it should be coupled with a significant reduction in the tax rate, and perhaps making the rate progressive as Gregor implies.
Comment by The Doc Tuesday, Sep 8, 09 @ 12:57 pm
I’ll admit that I didn’t study the report in detail, but it appears that this commission is still using the failed and discredited “static model” approach to this study. This kind of modelling assumes that taxation will not change behavior or result in the shrinking of a tax base.
This is the same bone-headed reasoning that resulted in Illinois losing over 700,000 tax paying citizens to “greener pastures” over the last 10 years.
I still remember Barbara Flynn Curie’s telling remarks when she was told that enacting punitive fees on the trucking industry in Illinois would virtually destroy it.
IIRC, her response was something like, “If they don’t want to do things our way, they can leave!”
They largely did, and took their good paying jobs with them.
Also, how could any serious commission fail to assess and quantify the potential job and revenue losses from enacting such an increase in service fees?
This statement, taken from the report’s conclusion, betrays the inadequacy of the report in that area:
“Volatility, equity, cascading taxes, and
opposition to the taxation of services are all topics that must be considered when
considering imposing such new taxation.”
That really tells us how likely this new tax would be in putting us into the unemployment (or moving van) line!LOL
Perhaps the most telling thing was that they actually quoted Ralph Martire’s misnamed “Center for Tax and Budget Accountability” in the study.
Martire’s a great lawyer and very bright, but he is clearly an advocate for what’s in the best interest of the government, public unions, and those taking more than they give to the state.
The rest of us? Well, we’re not his “clients”, so we can take the same route as the trucking industry for all he cares!
Comment by PalosParkBob Tuesday, Sep 8, 09 @ 1:01 pm
Best thing to do would be to subject services to sales as well, but then adjust the sales tax rate down to achieve the same overall revenue (or just slightly more).
If you don’t like the 10.25% sales tax on goods in Cook County, wouldn’t you like a 5.25% sales tax on goods and services better?
If you don’t like the 7% sales tax in your County, how would a 3.5% sales tax sound?
You might even get a revenue boost by the public seeing a new, low tax rate.
For non-State taxes, you just tell home-rule and other taxing jurisdictions that they can tax services only if they reduce their overall tax rate to the equitable revenue rate. I am sure you would see many takers, and a new, downward pressure on taxes.
Comment by George Tuesday, Sep 8, 09 @ 1:08 pm
The good part about that structure, for the “Bill”s of the world, is that if any sales tax increase is levied, a smaller increase nets a larger revenue #, and it hits all sectors of the economy evenly.
Comment by George Tuesday, Sep 8, 09 @ 1:13 pm
(sorry for 3rd post)
Though I would strongly disagree with Bill’s idea of levying a sales tax increase (a tax which disproportionately affects middle class and lower families) to fund property tax relief (which would go to the benefit of mostly businesses, middle class, and higher families).
Comment by George Tuesday, Sep 8, 09 @ 1:15 pm
I think this is appropriate, but I am also okay with the progressive income tax - just not both!
Wait. Maybe we should just tax all businesses on their gross receipts.
Comment by Hon. Cranial Lamb Tuesday, Sep 8, 09 @ 1:18 pm
Should Illinois impose a broad tax on services? Explain fully, please.
Of course not. A broad tax would just raise the costs we already pay for services. Why would we be so stupid to do that? A broad tax would remove $7 billion that would have gone into generating jobs, businesses, communities and wages.
Why would anyone believe we have $7 billion laying around just for the taking? Talk about short-sighted solutions from the feeble minded.
Illinois government is going to go bankrupt. Flushing another $7 billion down the rat hole our political leaders have been busy digging for the past decade will only rob each of us.
We’ll need every penny we have. Coming up with new ways to steal from us may make liberals happy, but these people also believe that under the free money trees, live unicorns and elves. You don’t listen to the insane.
No - not a broad tax. No - not to this corrupted hell hole of a state government. No - not to the boobs are have wrecked it.
Comment by VanillaMan Tuesday, Sep 8, 09 @ 1:19 pm
Taxing a service has nothing to do with a person’s ability to pay so I think it makes less sense that a progressive income tax.
Plus all thos non filers would be keeping records and turning in reports.
what a mess
Comment by CircularFiringSquad Tuesday, Sep 8, 09 @ 1:19 pm
The service industry already pays taxes on supplies they use. An electician for example buys wire, fittings, etc. pays taxes on it. They include the price of merchadise and material(including taxes they paid) in the cost of the job. If the job gets taxed (services) then there will be double taxation on supplies needed to do the job.
The same with people who cut hair, they also resell (as in shampoo’s etc) besides service, so they are already filling out an ST1 (Sales Tax resale) on their resale items, but supplies used in the service are taxed, and now will be retaxed. The ST1 monthly tax would have to be retooled for two tax scales, one for supplies used for services, and one for supplies resold for sales.
Ok on service taxes because there is already tax being made on supplies.
Comment by Third Generation Chicago Native Tuesday, Sep 8, 09 @ 1:20 pm
So my answer is no, because of double taxation that will be taken on by the consumer.
Comment by Third Generation Chicago Native Tuesday, Sep 8, 09 @ 1:22 pm
If I’m reading the charts right in the report, GDP has grown by a factor of 9 since 1975 while 15% of this total has transferred to the service sector from other areas (probably manufacturing). I assume that making things created sales tax revenue since buying steel and fuel and screws and drywall has sales tax applied. So tax revenues have decreased while this new source–service tax–has been ignored. No wonder sales taxes are skyrocketing.
Absolutely it should be considered. Also noted was business-to-business services would be excluded. Just to keep things simple though, if all services were taxed at 1%, over $2.5 billion would be generated annually. A much larger amount than any of the other suggestions raised this year except for the income tax increase, I think.
Comment by Lefty Lefty Tuesday, Sep 8, 09 @ 1:27 pm
VM, you’ve hit the nail on the head.
Despite all the rhetoric of doom and gloom little has been done by Springfield to address what got us into this mess; an overly low medicaid threshhold, an ineffecient and overpriced capitol project system, unfairly high and unsustainable pension and “double dipping” programs, and gross mismanagement stemming from incompetent cronies and patronage based operations (Are your listening Assessor Jim “can’t get the tax bills out on time” Houlihan?)
Pols always follow the path of least resistance. When trying to cheat the taxpayers results in more blowback than stiffing campaign contributors, things may change for the better.
Let’s not give them a another nickel until “change we can believe in” happens!
Comment by PalosParkBob Tuesday, Sep 8, 09 @ 1:58 pm
Taxes on services would be fine, if the state sales tax is frozen, and local sales taxes on goods above a given percentage are reduced. There may be a reaction to the tax with more services being performed by an “lay person” rather than a professional, but I can’t imagine that trend to be long-lasting if it does happen. It may be regressive, but a tax on services would spread the risk of overtaxing goods in a competitive interstate market that drives consumers to other sources of purchase, and would probably help in the profitability of goods sold and thus may help increase the income (and income taxes) earned from the sales of those goods.
Comment by Captain Flume Tuesday, Sep 8, 09 @ 2:05 pm
Would this tax apply to political campaign workers?
Comment by Carl Nyberg Tuesday, Sep 8, 09 @ 2:09 pm
VM,
Absolutley spot on! I think we need to learn how to talk to the insane, tho. I have heard it’s best to humor them but I find them mostly humorless.
To those out there who think that you can squeeze blood out of turnips - those in the know (on both sides of the aisle) have said it time after time. Lower taxes, create a climate where business flourishes and your revenue goes up. Demonizing the capitalists and punishing the wealthy drives the money out of the state. You can have better employment figures and more tax revenue. You can’t do it, however, by printing money or taxing those on the brink.
Comment by dupage dan Tuesday, Sep 8, 09 @ 2:48 pm
No. The tax won’t generate as much money as they think because it is tailor made for evasion. I can see businesses that do business mainly in cash only declaring half of what they receive.
I’m also against it because I think taxes are getting out of hand. Here in northeastern Illinois the property taxes are ridiculous, the sales taxes are the highest in the nation, and now they want to tax us some more… And I am a Democrat. Always have been and probably always will bee, but these taxes are becoming ridiculous.
Comment by The Teddster Tuesday, Sep 8, 09 @ 2:55 pm
No, We have to get away from the taxes that hurt those with the least ability to pay. Poor people often find it necessary to hire services like plumbers, electricians etc.
We have to get away from idiot taxes like taxing cigarettes and alcohol when state laws are making it harder to consume either.
Let’s get real, the only way to raise new revenue is through a graduated income tax hike. The truth of the matter is that we are going to, and have, seen a whole bunch of fee increases and special taxes (cigarettes, alcohol, etc.) passed to balance the budget; then finally we will see an income tax increase. But the GA won’t go back and repeal all of the little increases that led up to the income tax hike. So we will be worse off than if we had accepted the income tax increase years ago.
Comment by Irish Tuesday, Sep 8, 09 @ 2:59 pm
No, if the state needs the money, it has the ability to raise it through the income tax and withholding.
A new tax would create more paperwork and could be easily evaded with cash payments (just like bars and restaurants do now). . I doubt it if would produce the projected revenue.
Comment by wordslinger Tuesday, Sep 8, 09 @ 3:15 pm
my husband is a small business owner in the service industry. he is hounded with taxes already and asking him to collect a tax on his work will not just be a pain in the neck, but it definitely will get passed along to the client. for all the reasons already listed, I think taxing services is a bad idea. and it may push him to an early retirement, thus closing down another small business in IL.
the spend-regardless-of-cost crowd in Springfield needs to go away and let’s start over–my naive rant–again.
Comment by susie Tuesday, Sep 8, 09 @ 3:38 pm
No. Progressive income tax much more fair and less difficult to implement as it is consistent w/ existing bureaucratic structure. Start-up for service tax would be total FUBAR regardless of whether it would be a good idea. Also, just as regressive as sales tax. Both require constitutional amendment.
Comment by Abe's Ghost Tuesday, Sep 8, 09 @ 3:51 pm
Several years ago, I think it was Illinois State Senator Chris Lauzen had suggested that Illinois start to impose sales taxes on goods ordered over the Internet. Part of Lauzen’s rationale was that by doing this, it would help level the playing field for Illinois “Mom & Pop” small businesses who were forced to charge sales tax while their out-of-state Internet competition was immediately given an unfair advantage by not having to charge sales tax for Internet sales.
Wouldn’t this issue that Senator Lauzen proposed be at least worth re-visiting by our state legislature down in Springfield? The state’s dire situation has made Chris Lauzen’s idea even more relevant today. Not only will it serve to raise additional state revenue but it will also enable our Illinois small businesses to have a fighting chance to survive. Or, am I totally missing something?
Comment by The Prophet Tuesday, Sep 8, 09 @ 5:23 pm
This is a mixed bag for me. I could see collecting additional taxes if the State’s tax rate was on the low side. However, I was just reading an article/analysis the other day that identified the 5 states with the highest overall sales tax (including averages for county/city sales taxes), and Illinois was one of them. Seems like we need to get our spending under control first.
Comment by Anonymous Tuesday, Sep 8, 09 @ 5:50 pm
Prophet, I think goods that are ordered over the internet already are taxed in Illinois. The consumer is supposed to pay a use tax that is equal to what the sales tax would have been.
Comment by The Teddster Tuesday, Sep 8, 09 @ 6:39 pm
I like George’s idea about a reduction in sales tax at the same time, make it revenue nuetral or small increase in overall total. But I don’t think that the current crew in S’field (or Cook) would find it physically possible to reduce any tax, even if there was overall increase. They’d jack it back up in conference right before signing. So no, not with the current bunch of clowns…no new tax sources.
Comment by Bobs yer Tuesday, Sep 8, 09 @ 6:49 pm
Both Prophet and Teddster are correct. State law imposes a tax on goods bought out-of-state, and if the seller doesn’t collect the tax then the buyer in Illinois is supposed to declare and pay that tax.
However, many out-of-state sellers that have no brick-and-mortar presence in Illinois do not collect the tax. Relatively few Illinois taxpayers voluntarily keep track all those qualified purchases in order to report them at tax time. Sen. Lauzen’s proposal would have had Illinois join the 22 other states that have formed the Streamlined Sales Tax Initiative that would create a basis for collecting the tax. Estimates from a couple of years ago estimated revenue of hundreds of millions of dollars per year for Illinois depending on the number of states in the program.
Comment by muon Tuesday, Sep 8, 09 @ 8:17 pm
The IRS assumes that any income not reported to them by the employer is not declared, and taxes the employer for the income they assume, based on long experience, the payee did NOT declare.
Let’s not kid ourselves that more than 0.5% of people buying off the internet voluntarily pay a use tax. RE: Senator Lauzen’s proposal….when you up for re-election again?? Let me get my calendar.
Comment by Bobs yer Tuesday, Sep 8, 09 @ 9:01 pm
Silly people. Taxing services will make services more expensive. So rather than paying Joe the plumber his normal rate plus the service tax, more people will go to Home Depot, pick up the parts and do the repair themselves.
So not only will the state not get the service tax, but it will lose out on Joe the Plumber’s income tax from the service he could have provided. Joe might get frustrated enough to move the heck out of Illinois completely and go to a state where the economy is growing.
Services are a different animal from goods. You can’t easily build your own car, but you sure as heck could change your own oil.
Comment by Jack - Athens Tuesday, Sep 8, 09 @ 10:00 pm
Bobs yer, were talking about the Illinois Dept of Revenue not the IRS. IDOR can’t reach employers across state lines, so if it’s not being declared, it’s not being collected. The SSTI allows the states to work together to collect taxes where they couldn’t otherwise when they are undeclared.
Comment by muon Tuesday, Sep 8, 09 @ 10:45 pm
Yes, but in addition to amending the IL constitution to have a 30-40 year overdue progressive tax instead of the regressive 3% flat tax. IL is so in the hole and needs all the revenue it can muster, and quickly.
Comment by concerned citizen Tuesday, Sep 8, 09 @ 11:16 pm
The income tax rate for IL should increase to match other large-population states, progressive based on wealth and income, to 9-11% on highest brackets.
Comment by concerned citizen Tuesday, Sep 8, 09 @ 11:18 pm