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What corporate tax loopholes cost Illinois

With Governor Quinn set to call for major Medicaid cuts Wednesday, a new report says Illinois is losing hundreds of millions of dollars a year through corporate tax loopholes that other states have closed.

Indeed, Illinois leads the nation in revenue lost through several of the tax breaks, according to a report from Good Jobs First and Make Wall Street Pay Illinois.

The biggest loophole is the accelerated depreciation deduction, which costs the state more than $1 billion over three years – far more than any other state, according to the report.

The Illinois deduction is based on a tax break granted by the federal government, designed to encourage capital investment by allowing companies to write off new equipment immediately rather than over its expected lifespan.  Most states have “decoupled” from the federal measure.

“Forgoing revenue in the short term to help stimulate the economy is possible for the federal government because it is allowed to run a deficit,” according to the report.  “But for the states, with their balanced-budget requirements, such revenue loss during a recession would only force deeper budget cuts.”

Small businesses are covered by a separate deduction and wouldn’t be affected by decoupling, the groups say.  Decoupling from the accelerated depreciation deduction has been advocated by the Center for Tax and Budget Accountability (see Newstips from 2008 and 2011).

A break for Wal-Mart

Illinois could bring in $115 million a year by eliminating the sales tax “vendor discount,” a relic of the pre-computer age that gives retailers a portion of sales tax revenues to cover handling costs.  The groups estimate that Wal-Mart took in nearly $10 million from sales taxes paid by Illinois shoppers last year.

The state loses at least $63 million a year by using the single sales factor, which eliminates corporations’ taxable property and payroll share as factors in figuring income tax bills, instead using only their in-state sales.  Large manufacturers lobbied for the loophole, arguing it would create manufacturing jobs.  It hasn’t.

The formula can reduce the tax rate of Illinois-based corporations with significant production, payrolls, and property holdings here  but mostly out-of-state sales by 80 or 90 percent.

“We expect that the governor and general assembly will adopt a budget that protects revenue sources and provides for the educational, health care and infrastructure needs of the people of Illinois,” said Rev. Maggie Pagan-Banks of A Just Harvest, part of Make Wall Street Pay. “While the state is struggling to meet critical obligations to its citizens, it cannot afford to simultaneously subsidize corporate profits.”

At Clawback,Greg LeRoy of Good Jobs First, the report’s co-author, highlights recent layoffs at Sears’ Hoffman Estate headquarters – announced weeks after a $275 million property and income tax break designed to keep Sears here – calling it “the latest evidence that unaccountable tax breaks fail to promote investment for job creation.”

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Category: state budget, taxes

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5 Responses

  1. David Hatch says:

    Thank you for covering the issue of corporate tax breaks and revenue. We need to change the conversation from more and more cuts and austerity to solving the revenue crisis created by tax breaks to corporations and the rich. For 3 decades, we have been decimating society’s human and physical infrastructure for the profits of a few. Great work.

  2. [...] Chicago’s fiscal crisis is compounded by several factors, said Ron Baiman of the Center for Tax and Budget Accountability. Locked in political stalemate, the federal government is cutting domestic spending, and the state’s budget crisis is exacerbated by a constitutional provision mandating a flat-rate income tax. (On top of that, Illinois is one of the top states for corporate subsidies.) [...]

  3. [...] On top of RBC’s proposals, CTBA and others have highlighted the accelerated depreciation allowance, a federal provision that other states have decoupled from.  It costs over Illinois $300 million a year (more here.). [...]

  4. [...] What corporate tax loopholes cost Illinois by Curtis Black [...]

  5. [...] What corporate tax loopholes cost Illinois by Curtis Black [...]

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