The sad truth about Illinois’ fiscal crisis is that any proposed solution is bound to cause problems for someone.
In the case of a proposal from Gov. Pat Quinn to end three of what he calls “loopholes” in the corporate tax system, it could come down to hurting the state’s already fragile business climate in order to help pay down Illinois’ huge backlog of unpaid bills.
The Illinois Senate Revenue Committee heard testimony last week on a plan that Quinn first outlined last month to address the state’s desperate financial situation. The plan includes taxing the foreign dividends of multinational corporations. Quinn claims it would generate an estimated $445 million a year, which he said could go toward the state’s backlog of some $9 billion in unpaid bills.
Not surprisingly, the plan is being panned by business groups, including the Illinois Chamber of Commerce and Illinois Manufacturing Association. During last week’s hearing, they questioned whether parts of the plan were constitutional and said the changes would penalize businesses and hurt job creation. The chamber characterized the suspension of the tax incentives as a “tax increase.”
The proposed legislation calls for generating $320 million by taxing foreign profits paid as dividends to U.S. parent companies of multinational corporations. The proposal also would tax dividends paid by U.S. subsidiaries of companies doing business in Illinois.
Another proposal would eliminate a link between the state tax code and a federal law that allows deductions for “production activities” that Illinois-based companies move outside the state. Nearly two dozen states do this already, and it’s estimated to raise $100 million.
A third measure would require companies that have companion businesses to file a combined tax return, even if the companion is in the finance, insurance or transportation fields, which currently are exempt. The move is expected to bring in $25 million.
What’s puzzling to some observers is that Quinn has championed huge tax incentives for some companies to stay in Illinois or bring their business here in the last few years. In December 2011, the governor signed legislation giving $100 million in tax breaks and incentives for Sears Holdings Corp. and CME Group Inc., which operates the Chicago Mercantile Exchange, to keep them from leaving Illinois. Quinn contends those moves saved thousands of Illinois jobs.
It would be easy to understand business groups that say the governor’s new proposals create a climate of uncertainty. Does Quinn want to provide incentives for large companies to move to Illinois or keep their facilities here, or does he want to take away tax incentives in order to try to plug the holes in the state’s financial dike?
In the end, maybe not much will come of these proposals, anyway. Members of the Senate Revenue Committee say they expect extensive discussions on the tax “loophole” issue when the General Assembly reconvenes next week for the last two months of the spring session. But with so many fiscal issues needing attention — most notably, the state’s worst-in-the-nation public employee pension funding crisis — closing the “loopholes” may take a lower priority.