Lawmakers seek to roll back corporate income tax rates

By Jamey Dunn

Just a day after passing a tax break package that would benefit some businesses, House lawmakers on both sides of the aisle are pushing for a rollback of corporate portion of the recent income tax increase.

“I think people at the time of the increase of the corporate tax realized that that was not the route to go,” House Minority Leader Tom Cross said. “Business after business potentially will be coming to the state and looking for relief, and doing it on a per-company basis is not the way to go.” Under Cross’ plan, House Bill 3918, the corporate rate would drop from the current 7 percent to 6 percent in 2013 and would return to 4.8 percent, the rate before the increase, in 2014. Any unemployment rate increase of more than .3 of a percentage point over a four-month period would trigger a .25 percent reduction in the corporate tax rate as well. However, the rate could not dip below the 4.8 percent mark.

Under current law, the corporate rate will decrease to 5.25 percent in 2015 and go back to 4.8 percent in 2025.

“This bill is both measurable and meaningful to everybody. It doesn’t cut out a particular segment of businesses in the state of Illinois. It applies to everybody. So this is a way to keep jobs,” said Rep. Dwight Kay, an Edwardsville Republican. HB 3917, filed by House Democrats, would roll the tax rate back to 4.8 percent as of January. Cross said the fact that Democrats and Republicans favor a rollback on the corporate tax makes him think some version could pass in the House. “I applaud them,” Cross said of the Democrats’ measure. “We obviously support that concept and are willing to do that.”

The proposal comes the same week lawmakers approved a tax break package geared toward keeping Sears and the CME Group, which owns the Chicago Mercantile Exchange and the Chicago Board of Trade, in the state. Both companies had threatened to leave. The package included an extension of tax breaks for Sears that were set to expire and a reconfiguration of the way CME’s corporate income tax bill is figured based on its electronic sales. The plan also included other business friendly provisions, such as a reinstatement of the earned operating loss tax credit, which was suspended when lawmakers approved the income tax increase last January. Business leaders supporting Cross’ proposal called the plan passed this week a “first step” toward making the state more business friendly. They say the second step is cutting tax rates for all other corporations in the state. “In January of 2011 … we advised the members of the General Assembly that the corporate tax increases that were being proposed would be a serious mistake. And indeed, we’ve had a serious backlash and an ongoing discussions about taxes all throughout the year,” said Doug Whitley, president of the Illinois Chamber of Commerce.

The tax cut package passed this week also contained breaks for individuals, including an increase to the Earned Income Tax Credit and a provision that links the personal exemption to federal cost of living increases. Such breaks helped to draw the support of many Democrats, including Gov. Pat Quinn. Individuals saw their tax rates go from 3 percent to 5 percent under the increase earlier this year. The personal rate is set to drop to 3.75 percent in 2015 and 3.25 percent in 2025. There are no tax cuts for individuals in either the House Democratic or  House Republican plan to decrease the corporate income tax rate.“We’re very cognizant of the increase to individuals, and we have a bill to roll that back. But the bottom line is, unemployment continues to rise in this state … we need to provide jobs, and that’s the compassionate approach,” Cross said. Cross said it will take budget cuts to defray the cost of his plan, and that is why he is proposing a decrease that is phased in over two years. “Every point you drop the corporate tax, it’s about a $400 million hit. So we were very cognizant of the fact that we have a problem with our budget. And that’s why we drafted it in the way we did. We would of course like to see it rolled back immediately”

Senate President John Cullerton said he supports lowering the tax rate if the taxing base is broadened and the revenue coming in remains the same. He said a tax increase approved by the Senate in 2009 — which would have extended sales taxes to many services but only raised the corporate income tax to 5 percent — would have done the trick. “That provision was rejected by the House, and it did not pass. And as a result, when we negotiated the tax increase [that passed earlier this year], the corporate tax was as high as it was,” Cullerton said.

John Bouman, president of the Chicago-based Sargent Shriver National Center on Poverty Law, said the state simply cannot afford such corporate tax breaks. “I just don’t think we’re in a position in Illinois to be spending large amounts of money either on expenditures or on tax expenditures while we still owe people money, including a lot of corporate tax refunds.” He said lawmakers should view tax cuts, such as $100 million in incentives given to Sears and CME, the same way they would view spending on a program. “Even if it was justified, I just don’t think we’re at a time and place where any big expend from there can be done without offsetting with either revenues or spending cuts.” He gave the example of a group appealing to the General Assembly for $100 million in spending on programs that would benefit children in the state. “Their response would be: ‘Are you nuts? We’re in a crisis here. This might be a very worthy and fair thing to do, but we just don’t have the money.’”

Bouman — who is also a member of the Responsible Budget Coalition, which supported the income tax increase — said the state should instead focus on getting out of its budget hole and paying its billions in overdue bills. “The public supports a balanced approach to this that includes revenue and also includes spending reforms, but it requires a sustained effort on both of those … because we’re not out [of the budget hole] yet. We’re not balanced. The bills aren’t being paid.” He said HB 3917 and HB 3918 do not appear to be “aimed at any kind of coherent economic or tax policy” but are instead “pretty clearly political moves” being made by lawmakers running for reelection.

“We passed just yesterday an economic growth and tax reform measure for 2011,” said Gov. Pat Quinn. He told reporters in Chicago today that he wants to pass another tax reform package next year. However, he said that a tax break shouldn’t come at the cost of education or other core areas of government. Quinn also said that tax breaks for individuals are an important part of economic stimulus. “If you’re only going to have a corporate situation, I think you’re missing the people of Illinois … so we just can’t have it all one way. We’ve got to make sure everything is balanced for everyday people who are the heart and soul of our economy.”