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Wednesday, May 2, 2007 01:41 am

Now’s the time for a tax increase

The gross-receipts tax isn’t so bad, even if the governor supports it

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Untitled Document The governor’s proposed gross-receipts tax isn’t as gross as you think. Ohio, Texas, Washington, and other states have each implemented a version of the tax successfully. In those places it provides needed revenues fairly, with no signs of businesses’ failing or fleeing, as the Illinois business lobby warns will happen here. Unfortunately, Gov. Rod Blagojevich has so botched the politics of his proposal that it stands little chance of getting a fair hearing, much less passage. First, after his reelection campaign, in which he said that he wouldn’t increase taxes, he laid no political groundwork for his reversal. In Ohio and Texas the GRT came from blue-ribbon study commissions; here it came out of the blue. Now his strident anti-business populism only tends to confirm fears that Blagojevich is going to drive away companies and jobs. The governor actually said, “This is going to be Armageddon, and, as Teddy Roosevelt said, we are on the side of the Lord.” Hey, Kingfish, this is Illinois. We like business here. At least the GRT proposal has finally shifted debate from whether to have a tax increase to what type of tax increase Illinois should pass. For years the state’s politicians, led by the governor, have been in denial about the need for more revenue. Even during last year’s election campaign the governor said that selling the lottery would provide enough cash to meet the state’s obligations, and his opponent was similarly disingenuous. It came as little surprise that the governor changed his tune after the election, because politicians tend to do that, though going from a pledge of no tax increase to proposing the largest tax increase in the state’s history seemed radical. By now, however, even the business community seems resigned to the fact that some sort of tax increase is coming. Last month House Speaker Michael Madigan made it sound inevitable: “Before we finish the budget in May or June,” he said in Waukegan, “Illinois is going to need a tax increase. You’ve heard it many, many times. We need more and better education. That takes money.”
A compromise is in order, and Madigan, who has so far remained above the fray, seems the one most likely one to arrange it. Illinois is sorely in need of new revenue for education and pensions, as well as to fund the backlog of unpaid Medicaid bills. If there is money for it, the governor’s health-care proposal is worthy of consideration, too. A good compromise package would draw heavily upon Senate Bill 750, which would increase personal and corporate income taxes, plus extend the sales tax to cover services, while lowering property taxes. Some have suggested including in the mix an “alternative minimum tax” based on gross receipts, which could tap the state’s largest companies that pay little or no corporate income taxes now.
Though the GRT has been vilified to death for now, the concept is worth consideration for the future. The idea of a business tax that would take a little from everybody but not much from anybody has appeal. A tax with a broad base and a low rate is better than one with a narrow base and a high rate. The fact that it would reach many businesses that aren’t paying the corporate income tax now has been cause for much squawking, but it’s also part of the GRT’s beauty. Texas, Ohio, and Kentucky turned to the GRT because too few businesses were paying a major share of state taxes and others were getting a free ride. In Illinois, the service sector of the economy is the fastest growing, but it pays little in taxes compared with the goods-producing sector. Some form of GRT would level the playing field. Some argue that the GRT is regressive, taxing relatively small businesses and startups at the same rate as the largest businesses. But it is not as regressive as the property tax, which hits the smallest businesses the hardest, or the sales tax, which takes the biggest bite from those with the lowest incomes. A GRT could mitigate the need for sales- and property-tax increases. Another complaint is that GRT has a “pyramiding” effect, that it would compound because it is imposed on raw materials and the finished product, too. But if the rate is kept low, even with some pyramiding the tax bite still won’t amount to much. 
Illinois has always been a low-tax state, and now it ranks near the bottom in state and local revenues per capita. The Legislature needs to recognize that the bottom is not a good place for either people or businesses. Business needs fair taxation, but it also needs a state with good education, health care, transportation, and environment — the things that increased tax revenues can buy. Now is the time to get a deal done.

Contact Fletcher Farrar at ffarrar@illinoistimes.com
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