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How much is enough?

Doug WhitleyBy Doug Whitley
CIBM Contributor

Gov. Blagojevich wants to convince us to accept the biggest tax increase ever sought in Illinois. He would have us refinance embarrassingly large public pension obligations to thrust long-term debt upon our children and grandchildren.

The governor once again vigorously attacks job providers. The anti-business rhetoric he conveyed during his State of the State speech was a blatant appeal to class warfare, and it was unbecoming of a governor.

The governor reprimands the business community with a shameless tirade against anonymous, non-voting, big corporations. His solution to Illinois' fiscal woes is more revenue from the business community without a word about restraint or living within our means. He simply contends employers don't pay their fair share of taxes.

This is not true.

Recent tax burden studies compiled by Ernst & Young revealed employers pay 49.8 percent of all state and local taxes in Illinois, a higher percentage than employers in other regional states and far above the national average of 44.9 percent.

In 2006, Illinois employers paid $29.1 billion in state and local taxes. Illinois corporations paid $2.4 billion in corporate income taxes last year. This includes the personal property replacement income tax (PPRT) paid by corporations, but distributed to local governments. Whether counted as state or local revenue, corporations paid it.

Thanks to the nation's economic recovery from the last recession, corporate income tax payments increased in Illinois by 45 percent since 2002, a growth rate that exceeds the 17.6 percent growth from individual income tax payers during the same period. Yet Gov. Blagojevich is not satisfied with one of the 10 most productive and efficient corporate income tax laws in the country.

Politicians are schizophrenic about the role of corporate income taxes. Sometimes they want to use tax code to promote economic development and social policy by reducing tax liabilities and encouraging certain spending behaviors. Other times, like now, the overriding philosophy is focused on simply extracting more money from employers.

Some corporations may not pay incomes taxes in a given year, but if they don't there is a logical reason (or they are going to jail). Being on Fortune's list of largest corporations does not guarantee profitability: look at industry icons like United Airlines and Ford.

The income tax code helps companies weather recessions by allowing them to carry net operating losses forward to profitable years. It stimulates economic recovery by promoting corporate spending on equipment during economic downturns. It offers incentives to invest in underdeveloped areas, encourages research and development and helps offset employee training costs.

Many owners reinvest profits to modernize, increase competitiveness, hire more people or expand facilities. The governor's logic implies corporate reinvestment is somehow depriving government of its fair share of company money.

Corporate income tax liability is a poor indicator of the true tax burden or economic activity assumed by employers. Corporate income taxes only account for 8 percent of the total Illinois business tax burden. They rank fifth in importance after property, payroll, sales and use, and utility taxes.

The cost of doing business in Illinois continues to rise as a direct result of policies implemented since Gov. Blagojevich assumed office. Taxes and fees paid exclusively by business were introduced and raised in 2003, boosting state receipts by $319 million annually. Since 2003 a new worker's compensation tax has cost Illinois employers more than $100 million. Workers' compensation benefit increases established in 2005 cost employers approximately $75 million. Unemployment insurance tax increases imposed in 2003 have drawn $700 million from Illinois employers. Total estimated workers' compensation cost increases in 2006 approached $150 million. The state's minimum wage increased twice in the last five years and will continue to increase for the next three.

The governor's latest demand of Illinois business is $6 billion in revenue from a new gross receipts tax on practically every transaction. He also seeks a new 3 percent payroll tax to generate more than $1.1 billion, which can be characterized as a no-interest loan to the state from employers who may receive the benefit of a future credit or refund.

How much is enough?

The political appeal of a gross receipt tax is understandable; politicians with big government spending plans can mask the true costs from citizen taxpayers by washing revenue through the many transactions that occur in the course of doing business. This is commonly called tax pyramiding. It compounds tax liabilities throughout the supply chain until the cost falls on the final consumer in the form of higher prices.

The governor's claim that small businesses under $1 million in gross receipts will be exempt is misleading. A small company may be exempt from collecting and remitting the tax, but it will pay higher prices to suppliers and service providers who are not exempt and must increase their prices to compensate.

It is hard to imagine taking $8 billion or more out of the private sector's pockets won't disrupt the state's economy.

- Doug Whitley is president and CEO of the Illinois Chamber of Commerce. He can be reached at 312-983-7100 or mailto:dwhitley@ilchamber.org.

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