State tax debate makes no sense
Can circumstances in Springfield really get worse? Absolutely.
While Illinois is, in effect, bankrupt and deeply in debt, Gov. Pat Quinn and state legislators last week found themselves in a political brawl over — tax cuts?
That seems crazy, considering it was less than a year ago that they raised taxes. But readers don't have to rely on our analysis when state Comptroller Judy Baar Topinka so ably describes the situation.
Counting up the state's various obligations — including overdue bills, bills yet to come in and overdue corporate tax refunds — Topinka said, "that's $8.3 billion we're on the hook for right now while the Legislature is considering, again, coming up with a Christmas tree worth of goodies here for a minimum of $250 million annually."
The battle over tax cuts is part of the fallout from the January tax hikes. Legislators increased the state's personal income tax by 66 percent — from 3 percent to 5 percent — and the corporate income tax by 46 percent — from 4.8 percent to 7 percent.
But in Illinois, there are taxpayers who can be sheared at will and those who have the clout to fight back. Indeed, the reality that those without influence pay more while those with it pay less is an apt metaphor for government in this corrupt, dysfunctional state.
Quinn already has presided over a corporate tax break package for Motorola, which made noises about moving. Now similar threats are being issued by Sears, which is located in Hoffman Estates, and the Chicago-based CME Group, which owns the Chicago Mercantile Exchange and the Chicago Board of Trade.
Sears reportedly has been offered $400 million in tax incentives to move to Ohio. Meanwhile, a number of states, including Indiana, are trying to entice CME to move to their more hospitable tax climates.
Are both companies bluffing about moving? Who knows? But if they leave, it will cost Illinois more in lost jobs and lost tax revenue than the tax cuts needed to keep them here.
So unless they prefer to roll the dice, Quinn and state legislators have no choice but to accede to the demands from Sears ($15 million) and CME ($85 million). They, in effect, made their bed with last January's tax vote and now they have no choice but to lie in it.
Here's where it gets screwy. Quinn insisted the Legislature also approve tax cuts for individuals, including increases in the earned income tax credit and the standard individual income tax deduction. Other legislators then joined the tax-cutting frenzy and the cost eventually blew up to roughly $800 million a year.
This is a state with more than $8 billion in debt, where the governor routinely threatens to close state facilities and appropriations for education are made but not delivered.
The plan, obviously, was beyond stupid. So legislative leaders conferred and eventually proposed a $250 million package — $150 million more in tax cuts than the Sears/CME package. It overwhelmingly passed the Senate (36-18) but failed just as overwhelmingly in the House (8-99).
Once again, legislators pushing the Sears/CME deal are trying to figure out a way to salvage it. Democrats control the Legislature, so they have the power to pass whatever they want on their own. But they are insisting that Republicans join them in passing the tax cut plan. House Republican Leader Tom Cross said his members won't support the individual cuts.
Meanwhile, Quinn continues to insist that individual tax cuts be part of any package he signs.
Given the circumstances, reasonable people might wonder if this is just the legislative process at work or a clown show.
Illinois has many serious problems, one of which is a hostile business climate that encourages businesses with mobility to leave while discouraging businesses that might locate here from doing so.
While the Legislature was disgracing itself, things were happening out in the real world.
Watching the disarray in Springfield, Caterpillar spokesman Jim Dugan blasted Illinois as a state where "there's no long-term stability."
"We have a state that's clearly lost without a rudder," Dugan said.
Caterpillar, which has its headquarters in Peoria, has 23,000 employees in Illinois, and it used to have a lot more.
It's in the process of moving about 1,000 jobs from Japan to the U.S., and Illinois officials are trying to persuade Cat to place its new plant in Illinois.
Think what 1,000 Cat jobs would mean to the people of Illinois. But what are the chances of that happening in a state Cat describes as "lost without a rudder"?
Meanwhile, 600 workers at an Alberto Culver plant near Chicago learned they will soon be out of a job. Parent company Unilever, which plans to close the plant in 2013, said it can operate more cheaply elsewhere.
These are the real-world consequences of the corruption and incompetence of Illinois' political leaders. Our tax policies are ill-considered. Our hostility toward business is counterproductive. Our fiscal management borders on the criminally irresponsible.
It's not so bad, of course, that our political leaders can't continue to flourish amid the chaos. But ordinary people are being crushed.