Tax bashing
Monday, Mar 19, 2007 - Posted by Rich Miller
My syndicated column this week is about Barb Currie’s surprisingly harsh speech to the Taxpayers’ Federation of Illinois.
llinois House Majority Leader Barbara Flynn Currie usually hangs back and lets others make news. Since getting the No. 2 job in the House Democratic caucus in 1997, she hasn’t been known for being way out front on major issues. And as far as I can remember, she’s never once publicly criticized Gov. Rod Blagojevich.
But that all changed last week when Currie gave an important speech to the Taxpayers’ Federation of Illinois blasting the governor, a fellow Democrat. She insisted that she was only speaking for herself, not House Speaker Michael Madigan, but all of Madigan’s top people were well aware of the contents of her address before she delivered it.
Currie’s speech is a must-read for those of us who are fascinated by the slow-motion train wreck that is the 2007 legislative session.
She had a couple of nice things to say, but let’s get to the negativity…
Currie made it crystal clear that the Legislature will not “be rushed into making a mistake from which it could take the state decades to recover.” And she warned the governor to not revert back to his old scapegoating habits from his often-controversial first term.
“If our efforts to spend the time it takes to get it right this time lead him to accuse us of indifference to the suffering of our fellow citizens or to portray us as mere pawns of special interest organizations, he will have done his cause no good,” Currie said, adding, “Proceeding at a deliberate, careful pace is not obstructionism. Taking our time to make sure we understand the details, grasp the implications and make decisions based on facts, not spin, is not obstructionism.” […]
“If he prefers to leverage public policy via press releases, vigils, protest marches, television advertisements and airplane fly-arounds, I don’t think lawmakers will buy,” Currie warned. “Demagoguery will not be well received by most members of the General Assembly.”
I’ve been thinking about this speech off and on for several days, and I’ve concluded that this was the most important part…
Currie seemed to indicate that the gross receipts tax proposed by the governor was too high. She pointed out that corporations would have to pay about $500 million more than they currently do to bring them back up to the same level they were paying in 1980, while directly contrasting that with the governor’s so-called “fairness” plan that raises $6.5 billion a year.
It’s not “fairness” if the big companies are forced to pay many times more than they would be if they were paying all of their corporate income taxes. This is more about a new revenue source than it is about “fairness.”
Meanwhile, Crain’s ran this piece about the governor’s often overlooked 3 percent payroll tax on businesses…
Gov. Rod Blagojevich’s plan to tax businesses’ payrolls to fund half his $2.1-billion health care reform would run afoul of federal law, legal experts say.
Under the plan, employers that spend less than 4% of their payrolls on worker medical benefits would be taxed, a spokeswoman for the governor says.
Lawyers say that approach could violate the 1974 Employee Retirement Income Security Act (ERISA). The federal law dictates how companies structure benefit plans so companies that do business in multiple states don’t have to grapple with a patchwork of local laws. ERISA trumps any state law. […]
Illinois officials say a payroll tax wouldn’t violate federal law because the state wouldn’t be dictating how employers should structure health benefits. The state simply wants companies to pay their share — even reimbursing a worker for out-of-pocket medical costs would count toward the 4% figure, says Bob Greenlee, deputy director of the Office of Management and Budget. […]
But the Maryland appellate court concluded that giving employers the choice between meeting a minimum spending level or paying the state “effectively requires employers . . . to restructure their employee health insurance plans” and is “precisely the regulatory Balkanization that Congress sought to avoid” with ERISA.
Ralph Martire has been pushing for a tax swap forever. Just about all of his columns, speeches, etc. are about the subject. The governor’s gross receipts tax is competing for prominence now, and Martire is dumping all over it…
This is regressive, making low- and middle-income folks pay significantly more in taxes than they do today.
The way to raise revenue while achieving real tax fairness is to focus on income and sales taxes. This works better for two reasons. First, income and sales taxes are imposed only at the final stage of economic activity. Hence, these taxes are far less distortive of economic behavior. It’s also easier to identify who will actually pay what after the tax changes are implemented, which is crucial for creating tax fairness. Once income and sales taxes are assessed, property and other tax relief can be designed to ensure middle- and low-income families really won’t pay more. With the gross receipts tax, that’s not possible.
Comptroller Dan Hynes has several questions about the GRT, which he published as a Sunday Tribune op-ed…
Does the governor’s proposed $6 billion gross receipts tax accomplish the stated goal of tax fairness, or will it result in higher prices for consumers, job losses and businesses leaving Illinois? […]
But if health-care costs escalate, or GRT revenues underperform, will education be left underfunded? […]
Shouldn’t we fix our current Medicaid program before expanding it by $4 billion? […]
Which of his proposals will he cut in order to fund this property tax relief while also balancing the budget?
As I told Capitol Fax readers, Mayor Daley has adjusted his rhetoric somewhat on the governor’s GRT.
“I’m hoping the General Assembly looks at it very carefully and there’s some excellent, excellent points in it,” he said.
Still, he stumbled through the statement, made just prior to Saturday’s St. Patrick’s Day Parade.
“I’m supporting the governor’s plan, not 100, his plan, his concept with regard to funding education,” Daley said.
Clear?
And, finally, downstaters and Chicago legislators aren’t gonna be happy about this one…
Schools in Chicago’s collar counties would be the biggest beneficiaries of Gov. Rod Blagojevich’s plan to boost total per-child spending by more than $800 million next school year, records show.
Districts in DuPage, Kane, Lake, McHenry and Will Counties would get a combined $183 million more in per-pupil state aid if lawmakers approve the governor’s plan–a 28 percent increase over this year.
- Buck Naked - Monday, Mar 19, 07 @ 8:24 am:
For those who are criticizing the plan, how does your alternative address the number of large corporations that are paying no corporate income taxes? How can you come to the defense of these giants at the expense of working people trying to make a living, or to feed their family? Why is it out of the question to tax the large corporations without the consumer being unfairly taxed? IS the passthrough necessary so that CEOs can continue to make millions in salaries and incentives? Is it so the bums who rum Ameren get their $780K bonuses this year?
Why is it so easy for you to defend these large corporations?
- Johnny Poorboy - Monday, Mar 19, 07 @ 8:37 am:
I agree with Buck…large corporations may pay the State of Illinois millions of dollars in payroll, sales, property, and capital gains taxes (and their employees many millions more in income and property taxes)..but that is NO REASON they should not be paying millions more in corporate income tax.
It is not fair that a company like Boeing pays millions in other taxes, but no corporate income taxes, while some mom-and-pop operations has to pay the lion’s share of the corporate income tax.
It’s just not right, and I hope our lawmakers stick it to them. HARD. $780K in bonuses while people in Illinois are starving…If there is anything Illinois could use right now, it is a nice protracted class warfare campaign (paid for at taxpayer expense, I might add).
- Gus Frerotte's Clipboard - Monday, Mar 19, 07 @ 8:49 am:
The fact that suburban schools do well under the Governor’s increase is largely a product of the formula. Those areas (particularly exurban ones) have had huge population growth, and property values aren’t high enough to take districts out of the formula. Thus, they get money under this plan. They’d also get more money under Ralph Martire’s plan, or any other plan to increase the foundation level; that’s an issue of how the state’s output formula works, and to the best of my knowledge nobody has proposed changing that.
This is not a question of New Trier and Lake Forest taking at the expense of Harvey and Marion. The majority of the money the Governor is proposing to spend is divided by formula, the same way the increases of the last four years have been, and the same way HB 750 would do it.
In addition, this analysis looks only at the foundation level — it doesn’t look at special education funding, under which Chicago does very well.
Anyway, the point is, if legislators are upset about this, they can’t address it by spending either more or less money; they can only address it by re-doing the state’s general state aid formula. Given everything on their plate this spring, it seems unlikely that’s going to happen.
- Bill - Monday, Mar 19, 07 @ 8:53 am:
The time is now for school funding reform. The public is willing to bear some added burden to achieve this goal. Why shouldn’t business pay their fair share? Last year, 12,000 of Illinois’ largest corporations paid on average $150 each in income tax. More than 12,000 of the top companies that do business in Illinois paid less than $2000 in taxes despite sales totaling 264 Billion.Individuals pay 88% of all income tax with business picking up a whopping 12%. It is time for businesses that make gigantic profits doing business in our state to pony up to compensate for the state services that they use. The GRT is the fairest tax due to its low rate and broad base. It is PROgressive not REgressive. Since Pres. Jones has put Martire’s plan on life support it is time to look to new ideas to fund the services that our citizens deserve. Illinois is a low tax state with a flat rate income tax. The time is now to change how we fund education in this state. If you don’t like GRT come up with a better way to increase state revenue by $6 Billion.
- Bill - Monday, Mar 19, 07 @ 9:03 am:
P.S.,
It is time for the Speaker and his minions to grow up, put their petty political differences and personal vendattas aside and do what’s right for the people that elect them. It is time to act like the democrats they claim to be at election time and fix the revenue problems that have plagued this state since the Speaker was first elected to the House 30 years ago. This state is in trouble and another pension holiday is not going to make it right. The House should join with the Governor and President Jones who are courageously fighting for the people of our state. If they can’t force themselves to do that then they should come up with an alternative funding mechanism. They can’t cut their way out of this mess.
- zatoichi - Monday, Mar 19, 07 @ 9:04 am:
After reading the pros/cons of GRT, seems like it developed because Rod had $6B of promises/pledges and then used several “what if” sessions on Excel to see what hit the numbers. I do that regularly, but you also have to follow the ripple effects to see what the answer touches that you did not think about/anticipate. If Currie is right (there are good reasons other states dropped or have low GRT) it seems an adjustment is needed back at the spreadsheet.
If the arguement is the “big, bad corporations”, why not just go after them? $1M-$20M is not a big corporation. Plenty of local $4M-$5M companies just getting by and barely paying their way. Simply talk to your local banker and see who they are spotting on a weekly basis to meet payroll. Getting side tracked on a corporate CEO making a huge paycheck misses the point. The pass through costs will continue for any taxing scheme until people simply do not/can not pay the price for the product.
- leigh - Monday, Mar 19, 07 @ 9:07 am:
Is it just me or did the Gov’s people get up early this morning? Currie’s speech has me intrigued. It is a sign of wisdom to study a huge new tax before implementing it, understanding what the impact will be positive or negative. And shouldn’t the Gov be using campaign funds instead of state funds for his latest round of feel good rhetoric.
- Rich Miller - Monday, Mar 19, 07 @ 9:10 am:
Buck, see my comments above. If it was about “fairness,” the GRT would hit them for about $500 million.
- Bill - Monday, Mar 19, 07 @ 9:18 am:
Rich,
It is about fairness AND about the most equitable way enhance revenue to the state. The easiest way would be to just raise income taxes which would perpetuate the problem of business getting off, in many cases, scot free. With GRT everybody pays from the consumer to the big corporates. Hopefully, the legislature won’t load the concept with loopholes to satisfy all of the high paid lobbyists for big business.
- Rich Miller - Monday, Mar 19, 07 @ 9:20 am:
Bill, it’s about fairness only up to a certain point. After that, it looks like a handy revenue stream for big ideas.
- leigh - Monday, Mar 19, 07 @ 9:26 am:
Is it unreasonable to suggest that the “loopholes” just be addressed? Why not focus on how the biggest corps are avoiding taxes and stop picking on the businesses that are honest and already paying.
- VanillaMan - Monday, Mar 19, 07 @ 10:30 am:
Currie is right, Blagojevich is wrong.
We have seen over the past two weeks everyone who should have been onboard regarding Blagojevich’s proposal telling us they weren’t told anything. Instead of spending time making TV ads, why doesn’t the governor just do his job? Any good governor would have taken his proposals seriously enough to build a consensus with the other branches of government. Blagojevich not only ignored the General Assembly, these people are all Democrats! What? He couldn’t even work within his own party? Even after one term, this governor doesn’t know how to do his job, does he?
Blagojevich is so ignorant, he doesn’t even know Business 101. If he did, he would realize he doesn’t need good excuses to raise taxes; he just raises them to a level acceptable to the market.
It doesn’t matter if Blagojevich wants taxes to build schools, save Care Bears, or line his pocket - it doesn’t matter. All these bloggers crying about fairness just don’t get it. Emotions don’t have a place here, it is all about profits and bottom line. Stop your crying!
The moment Blagojevich pushes taxes high enough to make Illinois a loser for businesses, we lose. That is what he did two weeks ago. We went from being an average place for businesses to locate to one where NO business should locate. Who cares what reason he is flushing away our businesses? What matters is he is destroying our businesses.
Democrats are in charge. We need income, regardless of Blagojevich’s Nanny State dreams. His proposals are farcical and unrealistic. It will take adults to fix the state.
I just wish Curry’s staffers would not lift my post comments like “decades to recover” without a hat-tip. Please note Bill that Curry didn’t use any of your comments on this issue - she used MINE, buddy!
It is childish to use good excuses to justify tax increases. Thats the problem with Democrats. They think if they can come up with a good excuse to tax, the tax would be OK to everyone. No justification is needed. You want money? You can have as much as you want as long as it doesn’t drive prices so high businesses can’t stay competative with the rest of the world. The moment it does, businesses are gone and you are the loser.
- OneManBlog - Monday, Mar 19, 07 @ 11:07 am:
Hey Bill, is six billion more enough? How about 10 billion.
- Cassandra - Monday, Mar 19, 07 @ 11:45 am:
I don’t believe that Blago personally developed the GRT proposal. His staff (Ginger? Filan?) probably favored the GRT approach and had for some time, perhaps even before they came to state service.They sold Blago on it (not that difficult since he is hardly a policy wonk). And Ginger and Filan should be out on the hustings explaining the GRT, why they selected it, and particularly, why they favor it given the objections pertaining to possible loss of jobs and revenues and so on. Since these decisions really do impact the pocketbook of every Illinois taxpayer, they should do a series of meetings around the state to answer questions, as the guv’s office has with other initiatives. Most of our clueless legislators won’t understand GRT…neither does Blago….we need to hear from the source (s) who do.
And Dan Hyes is right again. If property tax relief is factored in, something else has to give.
That’s fine…but what and how much?
- Truthful James - Monday, Mar 19, 07 @ 12:11 pm:
Illinois’ economy does not exist in a vacuum. Imagine the competition from an company in Wisconsin which has no GRT, The cost of product to the distributor or wholesaler will be higher on an Illinois product, or the company will have to lower its price. In the first instance, the Wisconsin Company wins, In the second instance the Wisconsin company wins in the long run, as the Illinois Company does not have the same amount of money to reinvest in capital equipment, etc. So the Illinois Company moves to Racine, and still has the Illinois labor market.
- RMW Stanford - Monday, Mar 19, 07 @ 12:46 pm:
Who said that the State need 6 billion dollars + in new revenue? The State should control it spending and eliminate unneeded programs first before trying to increase taxes. For the consumer the GRT is no progressive, low income consumer will end seeing a higher percentage of their income eaten up throe higher prices caused by the tax as opposed to middle and higher income groups that save some of their income. The cost could be worse with the GRT do to the multiple times goods would be taxed (the pyramid effect)which will ended up embedded in the price of the good. On business it only progressive in that companies with higher revenue will pay more in raw terms, but that doesn’t nessicarly mean a companyu with higher income, ei higher profits, will pay more. You will have many situation were due to a company being in lower profit margin industry with higher revenue they will ended up paying more than a high income company in large profit margin industry but with lower revenues. SO in that case it would be effectively regressive.
Truthful James comments are 100 percent correct, this tax will hurt capital investment in the state and lead to slower economic growth.
- GA Watcher - Monday, Mar 19, 07 @ 1:52 pm:
The House Dems are well justified in taking a long, hard look at the Governor’s proposal. Take education funding, for example, his proposal guarantees $1.5 billion per year for each of only the next two years. So much for a sustainable solution!
- HoosierDaddy - Monday, Mar 19, 07 @ 1:54 pm:
Is the governor proposing to pass out condoms with his new tax plan? He needs to. Lube would be nice, too.
- Bridget Dooley - Monday, Mar 19, 07 @ 2:07 pm:
It’s ridiculous that the collar counties should receive such a disproportionate amount of financing from the Gov’s plan! I live in DuPage County and the schools are already like frickin’ kiddie country clubs compared to Chicago!
- Truthful James - Monday, Mar 19, 07 @ 2:12 pm:
Bridget, darling,
‘Tain’t money until the check clears the bank. In guv’mint it will always be too many mice, too little cheese.
Sorry, dear, the schols need to clean up their own funding act. Taxpayers have the right to expect Value in exchange. They are not getting it out of the bunch of Edsels in Big Ed.
- Yellow Dog Democrat - Monday, Mar 19, 07 @ 4:41 pm:
Buck, et al.:
Lots of corporations aren’t paying corporate income taxes because lots of corporations aren’t making money. Same reason lots of Illinoisans aren’t paying personal income taxes.
I agree with Leigh, if there are loopholes that allow some corporations to escape paying their fair share, the Gov should say what they are and make his case for closing them.
Rep. Currie makes the strong point, repeated by CapitolFax, that this isn’t about corporate tax fairness. If it was, we would be talking about a $500 million tax increase, not $6 billion.
It’s also not about funding schools. The Gov’s school funding plan raises $6 billion in taxes, but only provides $1.5 billion in new money for education. You don’t have to go to the same private school as the Gov’s daughter to see that something doesn’t add up here.
Where’s the other $4.5 billion going? A great question, and I’m dying for the answer. Not health care, we’ve got a 3 percent payroll tax for that.
- Rich Miller - Monday, Mar 19, 07 @ 4:43 pm:
YDD, the 3 percent only brings in about $1.2 billion, if my memory serves.
- A Citizen - Monday, Mar 19, 07 @ 6:10 pm:
Since we have paid off the $10,000,000,000 that we bonded and Kjellander got the $800,000 cut for - why That worked so well why don’t we go for another bunch of billions and solve all our problems? Screw the next three generations or so. And that is no overstatement! Maybe for an extra $Billion or so we could get us a real governor that governs instead of “perpetually campaigning”. And our legislature is no real brain trust when four or five “tops” cut all the deals and all the others just play kiddie games in the sandbox. We need a total review and overhaul of the state’s tax (and yes, fees) structure - Income, Sales, Property, Fees, and whatever other three card monte scheme they concoct. Do it right or NO new taxes, fees, GRT etc. Time for some serious governing not this amateurish sideshow we get every year!
- Cassandra - Monday, Mar 19, 07 @ 7:57 pm:
Filan was being disingenous when he told a Chicago business group that not one penny of the GRT tax monies would go to the state bureaucracy..except for perhaps a few administrators.
Maybe he’s telling the truth but the fact is that there is no guarantee that the guv and cronies will spend existing income wisely…in fact, the GRT revenues will potentially free up funds which would have gone to schools, transit, and so on. Those funds can be invested in hundreds of new patronage employees, lavish state employee raises unconnected to actual performance, squiffy contracts, the usual.
Money is fungible. How dumb does Filan think we are.
- To Bridget Dooley - Monday, Mar 19, 07 @ 7:59 pm:
While I agree it may seem silly that the suburbs would benefit from the increase in the foundation level, that is the function of the formula. Money isn’t being targeting to them. Most districts in the state do very well under the proposed increase. The formula, among other things, is driven by school attendance. There are schools in the suburbs that are growing like crazy.
- State Employee - Monday, Mar 19, 07 @ 8:01 pm:
Why do you seem to have such a disdain for state employees. I agree Filan is an idiot. But your comment about “lavish state employee raises” seems a bit ludicrous to me. Non-union employees have gotten the shaft under this administration. I wouldn’t worry about “lavish” raises anytime soon.
- steve schnorf - Monday, Mar 19, 07 @ 10:42 pm:
The Governor has a plan on the table. Meeks has a proposal in the form of legislation he has introduced.
Business doesn’t like the Governor’s plan. Business didn’t like 750. OK, fine with me. What is business’sproposal, or does business believe there are no problems needing to be solved? No education equity problem? No property tax burden problem? No unfunded pension liability problem? No structural deficit problem. No healthcare problem?
Look, it can only be parsed so many ways.
One, there are problems,and they need solutions.
Two, there are no problems needing solving.
Three, there are problems needing solving, but the Governor’s proposed solutions are not the right ones.
See, now it’s circular. Business has to pick one of the choices, but they don’t. Why not? Because either two or three makes them step into the ring. The media, the Governor, and the citizens need to force people’s hands here. I’ve felt for some time the proper way to frame this question to anyone is simple. “Look me in the eye. Tell me there are no problems needing solving.” OK, then I don’t agree with you, but you have told me why the Goernor’s proposal is not a good one. But if you concede some or any of the major problems noted above, and you don’t like the Governor’s proposal, then tell me (not with bs generalities) with speficity what we should do instead. Make the numbers work, and maybe the citizenry will like your proposal better than the Governor’s.
- Disgusted - Tuesday, Mar 20, 07 @ 5:01 am:
Flat Tax, period.
- Truthful James - Tuesday, Mar 20, 07 @ 8:02 am:
Disgusted –
Steve Forbes made a big boo-boo when he called his proposal a Flat Tax. Too many people took that to mean that everybody would pay the same dollars, thus it became DOA.
What Forbes was proposing was a Single Rate Tax with the first dollar of income subject thereto starting at some level ($17K in one evolution; $23K in other evolutions.)
Seen in this light, the Single Rate Tax is indeed progressive, if the traditional measures are used (taxes as a percentage of gross income.)
The benefits of a Single rate tax are many, including the lowered cost of filing and enforcement. However, your elected folk no longer have the ability to create nooks and crannies in the tax code, for which their sponsors reward them handsomely in the form of campaign contributions and other gratutities. Lobbyists would fight against this threat to their sources of income. They would stil be with us as they attempted to influence other legislation, of course, as well as government contracts.
I am for the Single Rate Tax and anything which promotes transparency in government.
- Truthful James - Tuesday, Mar 20, 07 @ 9:02 am:
Steve –
There are problems which need solving. Unfortunately, in once case at least, the solution is not possible if constrained by the traditional pathways.
The education of our children is a continuing problem. We must make them fit to compete in a 21st Century World economy. That is, we must create additional value within the education function. For decades, the sole soultion proposed has been more money poured into the Public Education monopoly on the use of state (and local) funds. More money has been the periodic recommendation of the hired guns at Augenblick and Myers, which keeps running at the State’s behest regression analyses proposing increases in Title 1 money. Eighty percent of it has gone into increasing teachers’ salaries (and inflating their pensions. We stand 12th in the nation in combined State and Local funding for schools
Strangely enough, the legislature has twisted the screw the other way, with tax caps on revenue generation (caps which are below the Maximum Tax rates for the several Funds) — counterproductive, but relection producing.
Have they succeeded in increasing the value of the output? It is hard to tell, given that the ISBE has dumbed doen the tests and normed up the results, clever administrators have convinced some Boards to avoid No Child Left Behind reporting requirements.
Around the country voucher programs are being used, Some include Charter schools, some go further and include private schools.
Meanwhile in Fortress Illinois, we have from this session HB 466 which will gut the charter school movement. Choice is a long way down the road. Our graduates go off to college for remediation before they can enter the mainstream.
Our teachers remain, in great part, underqualified. The ISBE just lowered the certification standard for history and social studies teachers. (We pay Driver’s Education instructors — because of age and seniority — much higher salaries than the job is worth in the outside economy. Way too few teachers have degrees wwith a major in the subject matter they teach, let alone graduate degrees in the field. We do reward the education school graduates with raises — in most districts — for every quarter of additional Education courses, as well as for longevity in the system.
Our system is like the American automoble industry in the 1950s. Some great cars, most were slowly rusting Detroit iron. Quality came only with competition from the newly arriving German and Japanese cars.
Let’s invest in Education Value. Open the education function to all certified schools. Measure the performance of each school. After accounting for special education needs, vest every parent with an equal share of State and local Education Fund money. Bring the parent back into play. Let the local District manage it. Include secularized parochial and church sponsored schools. Bring back Education Value.
The sad thing is that nobody iis willing to do the study to show how such a system would work.
But then, nobody at the State level is willing to show how and why the cost per student — basically the cost of teachers — is lower in our neighboring states.
Wouldn’t you say that such studies are needed before we pay more here? I do, as long as such a study was independent and not gun decked to obtain a desired result.