SPRINGFIELD, Ill. (AP) — What a state takes away,
it also can give back.
Less than a year after raising personal and
corporate income taxes, Illinois officials are pushing a $250 million package
of tax breaks for several prominent businesses threatening to leave the state,
including Sears and the Chicago Mercantile Exchange. To make the measure more
palatable, individual taxpayers also would get a dollop of relief.
The measure suffered a setback Tuesday when the
House rejected it, but legislative leaders said they were determined to reach a
deal in the coming days or weeks.
The idea of giving tax breaks to companies is a
hard sell in the state Legislature when many families are struggling and the
Occupy Wall Street movement is reflecting anger at corporate interests. But
advocates say if Illinois doesn't take action, the businesses and their
thousands of jobs will be lured away by states that are eager to take
advantage.
"If we don't do it, another state will. That's
the reality of the world in which we live," said Rep. John Bradley, a
Marion Democrat who is chairman of the Illinois House Revenue Committee.
The Senate approved the proposal Tuesday in a
special session, but the House balked, sending lawmakers into further
negotiations.
"We are prepared to come back as soon as there
is an agreement, as soon as we are able to work this out," said Bradley,
who has overseen negotiations. "Unfortunately, that day is not today.
Whether it's tomorrow or the next day or next week, we are prepared to come
back as soon as this is settled."
Illinois' tax dilemma is a collision between two
different goals: Balancing the budget and avoiding the image of a state that's
bad for business. And in the process, officials want to avoid being exploited
by companies making threats, perhaps empty ones, to flee Illinois.
When 2011 began, the state faced a deficit
projected to hit $15 billion. The Democratic governor and Democratic majorities
in the Legislature decided an income tax increase had to be part of the
response to that gap.
They bumped the individual tax rate to 5 percent,
up from 3 percent originally, and the corporate rate to 7 percent, from 4.8
percent. The increase, most of which is temporary and will expire in stages
over the next 15 years, is supposed to generate about $6.8 billion in its first
year.
Other states pounced. New Jersey, Indiana,
Wisconsin and more began promoting themselves to Illinois businesses. They
succeeded in drawing some companies away, despite protestations from Illinois
officials that the state still has a low overall tax burden.
In the months since then, the same Democratic
governor and Democratic legislators have passed measures to cut business costs
for workers' compensation and unemployment insurance costs. Now the package of
tax breaks is on the table.
Doug Whitley, president of the Illinois Chamber of
Commerce, sees the proposal as acknowledgement that officials went too far with
the January tax increase.
"They overreached," Whitley said.
"They're trying to bring the pendulum back to a more middle ground and
they're trying to send a strong message to employers that elected officials are
not oblivious to their outcry."
The tax package would renew a $15 million income
tax credit and a break on local property taxes for Sears Holdings Corp., which
has its headquarters in the Chicago suburbs.
The proposal also cuts income taxes about $85
million for CME Group Inc. and CBOE Holdings Inc., which run the Chicago
Mercantile Exchange and the Chicago Board Options Exchange.
The companies complain that they are still taxed on
every transaction they handle, as if all business is still conducted by
shouting men on trading floors, when most of their trades are now done
electronically by buyers and sellers who have no connection to Illinois. The
legislation being discussed would tax the exchanges on only 27.54 percent of
their revenues.
Some legislators question whether Sears, CME and
CBOE would really uproot their operations and leave Illinois. They worry that
giving the companies what they want will encourage similar demands from other
businesses.
"What's going to stop the next big company
from putting a gun to our head with the same type of threat?" said Rep.
Mary Flowers, a Chicago Democrat.
The package includes a raft of tax breaks that
apply to Illinois businesses in general: renewing a research-and-development
credit, changing the way losses can be applied to tax bills, exempting more
assets from the estate tax and extending a variety of existing credits for five
more years.
Families would get a little help, too — roughly
$110 million in tax relief.
The standard personal exemption on income taxes,
now $2,000, would be bumped to $2,050 and then increase with the rate of
inflation in future years. The state version of the earned-income tax credit
for poor families would rise to 10 percent of the federal credit, up from 5
percent.
Gov. Pat Quinn's office denies the package is a
response to the earlier tax increase.
His spokeswoman, Brooke Anderson, said that despite
headlines about the effect of the increase, Illinois is still adding jobs and
ranks highly in some assessments of the best places to do business. She said
the tax package is about making the state's system fairer for everyone.
More than 30 states have raised taxes since the
recession began, said Jon Shure, director of state fiscal strategy at the
Center on Budget and Policy Priorities. Some of those have gone on to offer tax
breaks to businesses, but Shure said he sees no evidence of a direct link. That
is, states don't seem to be cutting business taxes out of a sense that they
were wrong to raise taxes in the first place.
Shure said cutting state business taxes doesn't
help create jobs, but it can suck money away from education, infrastructure and
other important state obligations.
"If you cut taxes to address the political
perception that it creates jobs, what you've really done is take money away
from the things that really do create jobs," Shure said. "In the long
run it's detrimental to economic recovery."
Copyright
2011 The Associated Press.
