Illinois Business Leaders Bristle at Tax Hike Plan

Daily News Article   —   Posted on January 13, 2011

(by Kyle Peterson, YahooNews.com) CHICAGO (Reuters) – Illinois companies hit by an extended economic downturn say the state’s proposed remedy to its own financial crisis — a beefy tax increase — will deplete investment in local businesses, trigger job losses and force companies to leave the state.

The Midwestern state is home to some of the biggest and best-known U.S. companies, including three components of the Dow Jones industrial average — Boeing Co, Caterpillar Inc and McDonald’s Corp.

An income tax increase that passed the [Democrat-controlled] Illinois Legislature on Wednesday would raise the individual income tax rate temporarily to 5 percent from 3 percent and the corporate tax rate to 7 percent from 4.8 percent.

The bill is now headed to the desk of [Democratic] Governor Pat Quinn, who supports it.

“To have a strong economy, you have to have the state of Illinois in fiscal good shape,” Quinn told reporters on Wednesday.

The legislation would raise about $6.8 billion a year.

“There is generally a sense of shock that taxes have gone up as much as they have,” said Todd Maisch, vice president of government affairs for the Illinois Chamber of Commerce. “It’s hard to quantify at this point, but we expect it to have a very negative impact,” he said.

“During the debate, legislators said that they had heard from businesses in their districts over the weekend that if something like this went through, they were going to have employers move across state lines,” he said.

Maisch said the increase would raise Illinois’s corporate tax rate higher than in several neighboring states. When a 2.5 percent personal property replacement tax is factored in, the rate would be 9.5 percent, compared with 7.9 percent in Wisconsin, 8.5 percent in Indiana, 6 percent in Kentucky, 4.95 percent in Michigan and [6.25 percent in Missouri].

Wisconsin Governor Scott Walker was quick to pounce on the potential benefits to his state.

“Wisconsin is open for business,” he said in a statement. “In these challenging economic times while Illinois is raising taxes, we are lowering them.”

William Brodsky, chief executive of the securities exchange CBOE Holdings Inc, said that, while the fiscal woes of Illinois have not yet crimped his ability to recruit talent, they will do so.

“We’re greatly disappointed at the lack of a comprehensive approach to our state’s dire financial situation,” Brodsky said by email.

“Merely throwing tax dollars at a broken system, without overhauling the expense side of the ledger [cutting government spending], compounds the problem and undermines the financial recovery for every business and citizen in our state.” …..

Brodsky was on a committee that helped convince Boeing to move its headquarters to Chicago from Seattle, Washington, several years ago. Faced with the probability of higher taxes and a broken state budget, he said, companies seeking new locations for their headquarters would likely look elsewhere.

A Boeing spokesman said the company did not see a significant impact on its operations from the increase.

In an opinion piece in the Chicago Tribune on Tuesday, Caterpillar CEO Doug Oberhelman disagreed.

“It’s no secret that, when making investments, businesses have to consider the costs,” Oberhelman wrote. “And states with lower-cost environments provide an opportunity for business and their employers to succeed. That’s not the type of environment we are creating in Illinois with these tax proposals.”

Illinois, which faces a budget gap that could grow to $15 billion, is one of many U.S. states grappling with record budget deficits after the deep recession stunted tax revenue.

It is considered one of the weakest states after years of what critics say was mismanagement of state finances.

(Additional reporting by Ann Saphir and Karen Pierog; editing by Dave Zimmerman and Andre Grenon).

 

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Background

(from a commentary at realclearpolitics.com/articles/2010/11/12/the_second_wave_107933.html)

• While massive state budget shortfalls are not limited to predominantly Democratic states, they are concentrated in them.
• Explanations include rising Medicaid costs, increased spending on higher education, and the long-term challenge of funding public pensions.
• At the same time, "All the major sources of revenue have cratered." The states doing worst are the ones, such as California and New York, that had irresponsible budgets going into the recession.
• States that were fiscally responsible during good economic times, such as Indiana, have had a softer landing.
• The political crisis in many states has been delayed by President Obama's 2009 stimulus package, which temporarily plugged gaps in state budgets, and by a variety of budget gimmicks.
• Illinois, for example, has simply delayed payouts to doctors providing Medicaid, leaving about $6 billion in unpaid bills that will be eventually covered by the issuing of debt.