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.
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Rich
Miller also publishes Capitol Fax, a daily political newsletter, and
thecapitolfaxblog.com