A couple of week ago Illinois House Speaker Michael Madigan announced his intention to introduce legislation to cut the corporate state income tax rate – that is, the rate applied to business profits -- from 7% to 3.5%. Madigan said on announcing his plan, “I am hopeful this legislation will encourage CEOs to grow their work forces with good paying jobs.“
Life is short, so I’ll keep this brief. One, the big companies don’t need it, as they pay little or no state income tax as it is. Two, the Madigan plan leaves untouched the personal income tax rate, which affects many more of the small businesses that do need help. Three, businesses are not growing their work forces because there is no demand for what they sell, and a big reason for sluggish demand is the fall in the real incomes of the middle and working classes as an ever-bigger share of business revenues are paid out in the form of stock options and salaries to top managers rather than in wages to workers; for that reason, and to that extent, CEOs are job killers, not job creators.
As for the larger wisdom of the remarkable notion that it is government’s responsibility to support businesses, rather than the other way around, I offer evidence from the recent report from Good Jobs First. That analysis found that the cost of tax breaks and corporate subsidies in ten big states often exceeds what is spend funding public employee pensions. In Illinois, the give-aways range from location incentives to the EDGE tax credit, separate tax credits for film production, research and development, and enterprise zone investment, the exemption for Manufacturing and Assembling Machinery and Equipment, an electricity excise tax for enterprise zones, and a Manufacturers’ Purchase Credit, a cap on the Franchise Tax for Corporations. Add to that the money lost as a result of our international companies’ use of offshore tax havens, the biggest cost of all. Add it up and it comes to $2.4 billion; the cost to the state of pensions is about $1.9 billion.
Now of course business is hardly alone in being subsidized by tax breaks and incentives, such as the mortgage interest deductions and employer-paid health insurance enjoyed by the middle class. But those too are, ultimately, business subsidies, to the housing, finance, and insurance industries.I am not convinced by John McCarron’s argument in the Tribune that Madigan’s proposal was merely a bargaining chip in a comprehensive reform of the state’s revenue system. I don’t know what he’s thinking of. Whatever it is, he needs to think again.