There are two major tax increase proposals competing for support in the Illinois General Assembly. You've probably read about both, but you may not know the whole story.
The governor has a huge tax hike proposal on the agenda. It's called a "gross receipts" tax and it basically means that every dollar a business brings in the door is subject to taxation without regard to whether or not the business is actually profitable.
The tax kicks in after the first million dollars, which sounds like a lot, but really isn't. Plenty of businesses run on low profit margins. They may sell a couple of million dollars worth of goods or services, but their profits might only be a few percent of that.
The governor has claimed that his proposal is all about "tax fairness" because "fat cat" corporations are not paying their fair share of income taxes. He's right about the corporations avoiding taxation, but a family-owned restaurant that sells a little over a million dollars worth of food every year (and there are lots of them) aren't what you would normally think of as fat cats.
State Sen. James Meeks (D-Chicago) claims Gov. Rod Blagojevich's chief of staff told him that if the state moved the minimum taxation level from $1 million to $2 million, the government would lose $450 million a year in revenue. Meeks believes that the "real" money from this proposed $6 billion tax hike will come mainly from small to medium sized businesses, not giant multinational corporations, and I'm betting he's right.
Meanwhile, Meeks is supporting House Bill 750, which is almost universally described as a "tax swap." In the past, similar legislation "swapped" a large income tax increase for large cuts in the property tax. However, almost never mentioned is that this new legislation would extend the state sales tax to all sorts of services.
The Center for Tax and Budget Accountability, which also backs the Meeks bill, estimates that the revenue generated from those new service taxes would come to about $2 billion in the first year.
The idea of taxing services is fiscally sound. The service sector is where the real economic growth is, so the current state income and sales tax revenues aren't keeping pace with the growth of the economy. But implementing such a broad tax on services has in the past proved politically difficult. Many service-oriented business have close contact with their regular customers, and they've been able to use those relationships to pressure state legislatures all over the country to beat back service taxes. Barbers tend to be the most outspoken, and they have extremely loyal customer bases.
In addition to barbers and beauticians, the legislation would tax services and businesses like travel agents, computer repairs, carpet cleaning services, dating services, dry cleaners, storage units, nail and skin care, consumer goods rentals, diet services, private investigation services, bail bonds, photo studios, interior designers, collection agencies, auto repairs, parking lots and garages, towing services, amusement parks, racetracks, bowling alleys, cable TV, golf courses and country clubs, fitness and recreational sports centers, sports teams, performing arts companies, miniature golf, sightseeing tours, limo services, movie theaters and more.
If this bill remains unchanged, then it will be a Statehouse lobbyist's dream come true. They're already working overtime against the governor's gross receipts tax, but this will be like Christmas in springtime for the lobbyists, who will sign up tons of new clients.
Meeks said last week, however, that everything in the bill is open to negotiations, and particularly noted that if House Speaker Michael Madigan didn't want something in the bill then he'd be more than happy to take it out.
The legislation also eliminates long-standing sales tax exemptions for newsprint and ink, although that's one of the items targeted for elimination by some House Republicans who would like to vote for the final bill. They'd better get rid of it, or the newspapers will throw a huge fit.
Speaking of newspapers, the Illinois Press Association's board of directors, which includes newspaper publishers from all over the state, voted last week to officially oppose the governor's gross receipts tax proposal. The association's staff will be directed to "encourage" member newspapers to publish stories on the "community or local impact" of the gross receipts tax. When you start seeing these negative stories popping up all over the place, now you'll know why.
Rich Miller also publishes Capitol Fax, a daily political newsletter, and thecapitolfaxblog.com