Tuesday, May 22, 2007

Something's brewing

It’s no secret that House Democrats reject the governor’s gross receipts tax, but they’re coming up with a new mix of tax increases and other revenue ideas that they think would be easier for lawmakers to support — considering the GRT has been painted by the opposition as mysterious, catastrophic for businesses and sure to trickle down to consumers.

Rep. Edward Acevedo, a Chicago Democrat and an assistant majority leader in the House, dropped this one before noon today: “There were other ideas that were going to be brought to the table probably by the end of the day today — something that you haven’t heard of yet.”

Their priorities? More money for education and more ways to make the state and the schools accountable for what’s done with that new money. Their other priorities: Medicaid payments, road and school construction and higher education, for instance. In sum, the House Dems’ priorities would cost about $1.2 billion in new revenue. To raise that, they’re looking at closing corporate loopholes or reforming the state’s corporate income tax.

From GRT to AMT? One of the revenue ideas would still target businesses. The alternative minimum tax is becoming more common nationwide, but it applies to individuals. It basically taxes high-income individuals that could otherwise skirt the federal personal income tax. That falls in line with Gov. Rod Blagojevich's justification for a gross receipts tax — that corporations are allowed by law to skirt the state's corporate income tax — but Blagojevich spokeswoman Rebecca Rausch said Monday night that the alternative minimum tax hasn’t been talked about by the governor’s office as an option.

What it AMT? It’s currently a flat tax on individuals. The federal government uses a different formula that excludes some tax breaks or deductions allowed by personal income tax. If it were applied to Illinois businesses, some would have a higher tax liability under the alternative minimum tax than they would under the state corporate income tax. Some would have less liability, but they’d pay whichever amount was higher.

The alternative minimum tax at the federal level wasn’t widely used before 2001, but Congress keeps approving tax cuts that change taxpayers’ liabilities. By 2010, the tax is expected to affect one-fifth of all taxpayers, according the Internal Revenue Service’s 2003 annual report to Congress.

Opponents call the alternative minimum tax problematic because it’s not adjusted for inflation, requiring Congress to increase the income levels each year. And opponents say it complicates the tax filing system. The Center on Budget and Policy Priorities has some more FAQs here.

House Dems aren’t sold, however. They have questions about it just like they had questions about the governor’s gross receipts tax. Rep. Gary Hannig, a Litchfield Democrat and deputy majority leader, says it’s easy to look at tax stats and see who’s not paying their “fair share,” but then you realize that the way the law would be written might subject a hog farmer in Macoupin County to bear a high tax burden. The Devil’s in the details of how an alternative minimum tax would be written into law, he says.

Why would House Dems support it? Rep. John Fritchey, a Chicago Democrat, says, “It is easier to apply, easier to understand, easier to ascertain the impact. Additionally, you don’t have the pyramiding problems that you have with GRT. And it is not a tax that is as readily passed on to the consumer.”

Could Republicans support an AMT in the tax mix? “It would not be well received,” says House Minority Leader Tom Cross of Oswego. “I’m not buying into the premise that we need a tax increase.”

The House and Senate GOP members have said all along that they oppose tax increases because they don’t believe the state needs to spend more than it already is, especially with such ballooning costs as Medicaid bills and state employee health care and pension benefits. But could the House GOP support a plan that would override the governor’s veto of any income or sales tax increases? “Depends what the situation is,” Cross says, adding they want to improve education funding, build new roads and take care of Medicaid payments just as much House Dems. “We’re for less spending and less growth. We know the reality is people aren’t talking, and we could get out of here with a minimal-growth budget. And we’re certainly willing to look at that.”

Hannig, however, says the state’s obligations by law (eg. pensions) and by contracts (eg. AFSCME and SIUE contacts for state employees) add up to about $1.3 billion, which exceeds the nearly $900 million natural revenue growth expected in fiscal year 2008.

What about Senate support? Few if any House members would vote for an income tax increase if it were known to be dead on arrival in the other chamber. Senate President Emil Jones Jr., however, “ran faster than the speed of light into the chamber, avoiding the press” before the Senate started session at noon today, according to Deanese. We’ll get back to you with Senate reaction.

We’ll also post more revenue ideas as they shape up in legislation this week.

Some Senate comments update
Sen. Donne Trotter, a Chicago Democrat and budget point person, says the Senate members he’s heard from want some sort of revenue growth in the next state budget. On the other hand, he said, “There’s no consensus at this point. We’ve had no discussions.” Instead, he says they’ve been studying the proposals on the table before debating the issue.

Sen. Christine Radogno, a Lemont Republican and GOP budget negotiator, said the House’s departure from the governor’s health care and tax proposals reflect public opinion. While Radogno says health care for the uninsured is definitely an issue legislators are interested in, she also says the governor’s Illinois Covered plan is “way too big and has way too many unintended consequences.”

At this point in the session, Radogno says she sees two choices before the legislature: It could either approve a maintenance budget, which Republicans in both chambers favor, or consider a tax swap package that would increase the state’s income tax and expand the state sales tax in return for property tax relief. The likelihood of both chambers approving a tax swap is slim, she said. And because the existing language in HB 750 is vague, she doesn’t see it winning legislative approval in just nine days. “My guess is that we’ll get called back in the summer to address education funding and health care.”

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