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Corporate taxes and the state’s fiscal crisis

A coalition of community, labor and religious groups will hold a press conference at 9 a.m., on Friday, September 27 at the Thompson Center press room and march over to the Bilandic Building, 160 N. LaSalle, to a House Revenue Committee hearing on the Illinois Corporate Responsibility and Tax Disclosure Act.

 

Illinois is in fiscal free-fall, but our political leaders seem incapable of addressing a structural deficit created by our regressive tax system.

The state’s crisis threaten to swamp the budgets of cities and school districts as well as funding for human services and health care, but “the only solutions that are ever discussed are deeper and deeper cuts,” said Kristi Sanford of Northside POWER, part of a statewide coalition pushing for corporate tax accountability.  “But these cuts just hurt Illinois families and the state’s economy — and no amount of cuts can solve the problem.”

Meanwhile Springfield is leaving serious money on the table:  two-thirds of corporations operating in Illinois paid no state income tax in 2010, according to the Illinois Department of Revenue.

According to the Governor’s Office of Management and Budget, 80 percent of state revenues come from individual income tax and sales tax receipts; only 9 percent comes from corporate income taxes.

Corporations reporting billions in profits are estimated to have paid no state income tax.

We don’t know what individual corporations are paying, but major Illinois-based corporations — with massive profits — paid no federal income tax from 2008 to 2010 (in some cases receiving huge tax subsidies instead), according to Citizens for Tax Justice.

Who’s not paying?

And since state taxes track federal taxes, advocates say we can probably assume no Illinois income taxes were paid over those years by Boeing, with $14 billion in profits; Baxter International, with $1.3 billion in profits; Integrys Energy Group, with nearly $1.18 billion in profits; and Navistar International, with $1.1 billion in profits.

The problem is that for too long, corporations have entirely dominated tax policy debates, according to Dan Bucks, former director of revenue Montana, who advocates for corporate tax accountability measures.  He backs a measure now under consideration here to encourage greater public participation by requiring large publicly-traded corporations operating in Illinois to disclose their state income tax payments.

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Human services in the Age of Austerity

Clients and welfare workers from the state’s human services system will discuss attacks on public services coming under the guise of austerity — including a privatization contract that an artbitrator recently ordered shut down — at a public meeting Monday.

The Alliance for Community Services is sponsoring the meeting on health care and human services at 6:30 p.m, Monday, July 8, at Teamster City, 300 S. Ashland.

Ralph Martire of the Center for Tax and Budget Accountability will discuss the state’s fiscal crisis.

“The reality is, we’re not broke,” said Fran Tobin of Northside Action For Justice, one of the initiators of the alliance.  “There’s lots of wealth in the state, but our regressive revenue system is failing to tap into it.”

Human service clients and welfare workers will tell stories of difficulties caused by a chronically understaffed system, said Steve Edwards, a retired union activist.

One source of problems is a new DHS pilot program — poised for expansion — that shifts from case-based to task-based organization of office work.  Under the program, caseworkers have been shifted to “teams” devoted to specific tasks.

“You have former caseworkers — who have college degrees in specific fields and a year of additional training — spending all day opening mail,” he said.  Everyone’s work goes into a single pile, with no one responsible for the ultimate disposition of particular cases.  It means clients no longer have a caseworker who they can call to address problems.

“They’ve blown up accountability,” Edwards said.  “It looks to me like sabotage.”

“Under the rhetoric of increasing efficiency, they’re clearly making things worse,” Tobin said.  “It’s insane.”

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Alternatives to school cuts

Just a month ago — when they were intent on closing 50 schools — the watchword at CPS was “quality education.”

“What we must do is ensure that the resources that some kids get, all kids get,” said Barbara Byrd-Bennett in an internet ad funded by the right-wing Walton Family Foundation.  “And these resources include libraries and access to technology and science labs and art classrooms….

“And with our consolidations we’re able to guarantee that our children will get what they need and what they deserve.”

That was then.

Raise Your Hand has released a very partial list of budget cuts faced by schools under the district’s new per-pupil funding system, and it’s impressive:

Goethe, Jamieson, Kozmisky, Sutherland, each will lose between $250,000 and $300,000.  Audobon, Belden, Gale, Grimes Fleming, and Ray, between $400,000 and $500,000.  Bell, Darwin Mitchell, Murphy, Suder, Sullivan High, betweeen $700,000 and $800,000.  Gage Park High, Lincoln Park High, Mather Elementary, Roosevelt High, $1 million or thereabouts.  Foreman High, $1.7 million.

CTU reports that Taft High School faces a $3 million cut.

According to Wendy Katten of RYH, every school they’ve contacted faces budget cuts.  So far they have figures from about 10 percent of CPS schools, and the cuts total about $45 million, she said.  (CTU budget analyst Kurt Hilgendorf said the union has requested district-wide figures on cuts but CPS has declined to supply them.)

“It’s horrific,” she said.  “There are terrible losses.”

It also clearly contravene’s Byrd-Bennett’s promise about what school consolidations would accomplish.

Losing library access

Two high schools,Von Steuben and Lincoln Park,  are reported to be considering laying off librarians — at Von Steuben it would mean no open-access library; at Lincoln Park, the library would remain open part of the school day but not after school — but many more principals are being forced to choose between staffing their libraries and having enough teachers.

At many schools it will mean  eliminating art or music.  At Katten’s son’s school, it looks like art will be eliminated and physical education will be staffed by a part-time teacher — which means gym just twice a week, far below the state requirement.

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Reality check: closing schools, saving money?

For month after month, Chicagoans have been told that CPS has to close schools because it has a $1 billion deficit.

How will people react after the massive disruption of wholesale school closings, when the district’s financial problems remain unchanged?

And that’s before Mayor Emanuel starts handing out new contracts to charter schools.

CPS says they’ll save something like a billion dollars over the next decade by closing 54 schools.  There’s reason to be skeptical.

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Common sense on pension reform

Lots of gnashing of teeth over the failure of the legislature to “do something” about pension reform.

Some sensible sorts point out we’re probably better off without the plan put forward in the House, which would have been challenged in court and almost certainly found unconstitutional, since the vast bulk of its savings came from reducing the benefits of current state workers and retirees.

In Arizona, which has a constitutional provision like Illinois’s barring any diminishment of pension benefits, a recent reform plan was found unconstitutional – and the state was ordered to pay workers back with interest, points out Ralph Martire of the Center for Tax and Budget Accountability.

If there’s one thing we’ve seen this week it’s the wisdom of the 1970 Constitutional Convention in protecting state workers from lying, thieving politicians — and from honest, well-intentioned ones who try to fix their messes without seeing the big picture.

All the plans on the table are focusing on the wrong area of the problem, Martire says.  “We don’t have a benefits crisis, we have a debt crisis.” It’s the predictable result of the 1995 “reform,” which pushed the problem down the road by steeply backloading pension fund payments.

Stabilize the debt

CTBA has proposed amortizing the pension debt over 45 years, which would head off steep pension contribution increases now facing the state — and in fact reduce pension costs over time.

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In Springfield, no solutions

Sad to say, nothing they’re doing or talking about in the General Assembly will have a significant impact on the state’s chronic budget crisis.

Not draconian Medicaid cuts, not possible pension cuts or casino expansions.  The legislature is barking up the wrong trees, and doing it over and over.

That’s because the state doesn’t have a spending problem.  In real terms, Illinois has been steadily cutting spending on education, human services, health care, and public safety for the past decade.  Medicaid is not the problem: general revenue funds going to Medicaid are down over the past five years.

According to Ron Baiman of the Center for Tax and Budget Accountability, Illinois is one of the nation’s wealthier states, looking at the state’s gross domestic product per capita.  But it has been one of the nation’s lowest-spending states, looking at state spending as a percentage of GDP.

So the problem isn’t overspending, and cutting doesn’t get us closer to a solution. The problem is a regressive tax system that doesn’t tax where the money is.

Regressive

Illinois has one of the most regressive tax structures in the nation.  As noted here last year, the bottom 20 percent of households pays twice as much of their income in state and local taxes as the top 20 percent does.

Even the flat income tax is regressive, since it imports all the federal tax code’s loopholes; of the current nominal rate of 5 percent, households earning over $1 million a year pay an effective tax rate of just 2.1 percent – the same as households earning over $10,000.  The squeeze is on the middle.

And especially with the surge of income inequality in recent decades, that means the state asks more and more from people who are doing less and less well, and fails to capture the gains of economic growth, which are increasingly found at the top.

It can’t go on forever.  At some point Illinois leaders are going to realize there’s no alternative to a progressive income tax.  The constitution, which mandates a flat tax, will have to be amended.

All our neighboring states have progressive systems – and that’s the reason their budget problems are so much less than ours.  If we took Iowa’s income tax rates and applied them to Illinois’s tax base, we’d raise $6 billion more a year – and 54 percent of taxpayers would get a tax cut averaging 24 percent, according to CTBA.  If we took Wisconsin’s we’d raise $3.6 billion more a year and cut taxes for more than half our residents.

Tax cut

The Illinois constitutional amendment will have a straightforward appeal: nearly all taxpayers’ rates will go down.

CTBA has fashioned a proposal for a progressive tax system for Illinois that raises an additional $2.4 billion yearly (even after allowing for increased tax avoidance by wealthy taxpayers) and reduces the tax rate for 94 percent of taxpayers.

Everyone earning under $150,000 would get a tax cut.  Starting to sound good?

It’s not even very tough on the wealthy; CTBA figures the effective tax rate (after deductions, credits and offsets) would top out at 6.3 percent for those earning over a half million a year.

There’s other money the legislature is leaving on the table, as it cuts public services to the bone.  A restructuring of the corporate income tax in 2001 – an unsuccessful attempt to encourage job growth — means most Illinois corporations pay no income taxes.

And an antiquated sales tax which applies to goods but not services – so if you buy a lawnmower and gas to mow your own lawn, you pay a sales tax, but if you hire a lawn service you don’t – costs the state between $500 million and $1 billion a year.

Corporate welfare

Then there’s corporate welfare – an area in which Illinois is a leader.  The Responsible Budget Coalition identified six corporate tax loopholes which don’t make economic sense — and where Illinois departs from federal policies and practices in other states — costing Illinois nearly $700 million a year.

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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.”

CME tax break is ‘occupied’

About the time CME representatives were meeting with legislators in the state capitol yesterday, a huge group of people filed into the building’s rotunda and began a “people’s mike.”

The first mike leader began: “We are Occupy Springfield,” and the crowd repeated each statement he made, amplifying it through people power.  “We are the 99 percent.  We will be heard.  Vote no on SB 397.”  That’s the bill granting CME a break on the state income tax worth $60 million or more (see previous post).

As the first leader was escorted out by Capitol police, another was tagged and continued the statement, a process that continued until the police apparently decided to just let them finish.

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