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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.”

Workers win at Republic Windows

Last Friday, the day Republic Windows workers occupied their factory, the Department of Labor announced 533,000 jobs lost in November, the largest loss in over 30 years.

The news on unemployment gave national resonance to the window makers’ plight. It also meant that for Republic workers, “it was riskier to leave the plant and go into this labor market” than to stay inside and face possible arrest, said Mark Meinster of United Electrical Workers.

It was one a number of extraordinary factors that strengthened their hand. There was the bank bailout initiated in October, which had generated widespread outrage — and now had failed to stem cascading job loss. There was the presence of President-elect Obama’s transition team, and the national press, in Chicago — and Obama’s remarkable statement of support for the workers’ demands on Sunday.

“We never expected this,” Republic worker Melvin Maclin, vice president of UE Local 1110, commented on the support of major public officials. “We expected to go to jail.”

Then there was Governor Balogjevich. On Monday, the day before his arrest, he appeared at Republic and promised the state would stop doing business with Bank of America, Republic’s main creditor, which had cancelled the company’s credit and put the kabosh on paying workers what they were owed.

Blagojevich’s statement was taken as a threat, but in the chaos of the next day, when he was taken off in handcuffs by the FBI, the state did indeed shut off business with the bank. BoA provides financial services for tollways and other state operations. It was “a big hit” for the bank, Meinster said. And the city and county were considering similar actions.

On the ground, support for the workers swelled. There were daily demonstrations on LaSalle Street. In Little Village, community supporters protested at a BoA branch. The union reported demonstrations at BoA offices in New York, San Francisco, Buffalo, and Florida. Dave Lindorff reported a similar action in Philadelphia.

Jobs With Justice, which held rallies around the country for a “People’s Bailout” this week, began talking about a boycott of Bank of America.

On Wednesday, the day negotiations were concluded, there were hundreds on a picketline that stretched two blocks outside BoA’s LaSalle Street office. And in Charlotte, N.C., local labor groups picketed the banks national headquarters and tried to deliver a letter to bank executives. (As in Little Village, they were prevented from entering.)


Under pressure from many directions, BoA sidestepped its statements claiming no responsibility for compensation due Republic workers and ponied up $1.35 million to meet their demands. JPMorgan Chase, recently revealed to be a 40 percent owner of Republic — where midwest chairman Bill Daley must have been concerned about political fallout — came up with another $400,000.

Workers got the eight weeks of pay and health coverage they were entitled to under plant closing laws, as well as the vacation pay they had accrued.

The victory demonstrates the value of militant action by labor in addressing the economic crisis, Meinster said. He notes the rejuvenating effect on the movement — particularly the outpouring of support from unions that might not have taken this action themselves, at least before the example of Republic workers.

Recalling Rosa Parks, Rev. Jesse Jackson called the factory takeover “the beginning of a larger movement for mass action to resist economic violence.” Chitown Daily News quoted UE regional president Carl Rosen calling the victory “a wakeup call to corporate America that the rules have changed in this country.” AP quoted Chicagoland Chamber of Commerce president Jerry Roper saying, “I’d be the first to say to companies that what you saw with workers at Republic will be repeated over and over across the country.”

Green Jobs

The union announced the creation of a foundation dedicated to reopening the plant, seeded with thousands of dollars donated to support the workers along with money from the national union. It will probably fund some initial planning efforts, in the hope that federal support may be forthcoming next year in connection with further bailout efforts or from economic stimulus focusing on green jobs.

It may not be an unreasonable hope, given strong support from local congressional leadership — and given the surge in demand for Republic’s energy-efficient windows that an anticipated national energy conservation program would create.

Phil Mattera of Good Jobs First pointed out that in the web of issues raised by the confrontation — including unemployment and the loss of manufacturing jobs; fairness for workers in plant closings; and accountability for the federal bank bailout — the issue of green jobs was overlooked in media accounts. (Indeed the connection with the bailout was largely elided in earlier accounts — presented in photos of picketers’ signs but left out of accompanying articles — before politicians began raising it.)

The union kept raising the issue of green jobs even as it focused on immediate demands for fairness. The issue is now the basis of any hopes of reopening Republic.

“The workers want Bank of America to keep the plant open and the workers employed,” Carl Rosen said after the settlement. “With Barack Obama’s stimulus proposal, there will be even greater demand for the products made by Republic’s workers. It doesn’t make sense to close this plant when the need is so obvious.”

There is also the question of how labor addresses longterm disinvestment and deindustrialization. Dan Swinney of the Center for Labor and Community Research argues for a proactive role for unions, monitoring their companies for signs of problems and seeking alternatives to shutdowns by working with community groups and public agencies and seeking business allies.

He points to a remarkable parallel: In 1993 Steelworkers Union members at Sharpsville Quality Products, a decades-old foundry in western Pennsylvania, were told (like Republic workers) that their plant was closing in three days. Like Republic workers, they occupied the plant. They occupied it for 42 days, sought out community allies and worked with the regional industrial retention agency (as well as salaried employees) to take over the business. (See chapter five of Swinney’s Building a Bridge to the High Road.)

Employee ownership is only one possible alternative (and it doesn’t always benefit employees, as the Tribune Company is demonstrating). In the mid-1980s CLCR worked with UE and community groups in an unsuccessful effort to support a local investor’s bid to acquire electronics manufacturer Stewart Warner and keep 2,500 jobs in Chicago. Swinney points to a number of models, including large-scale community-labor cooperative enterprises in Canada and Europe. In any case, he says, unions need to be proactive and creative — and move beyond their focus on wages, benefits and working conditions.


In another coincidence, while Republic workers were protesting Bank of America’s credit cutoff to Republic, the failure of banks receiving bailout funds to use them for their intended purpose came under new scrutiny in Washington.

When the Treasury Department started handing out funds under the Troubled Assets Relief Program in October, the Federal Reserve and three regulatory agencies issued a statement: “The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers.”

But as the New York Times pointed out in November, “that admonition wasn’t accompanied by any real requirements to lend.” Instead, “nervous lenders are demanding that even healthy loans be paid back. Banks and other financial institutions, meanwhile, are reducing exposures to borrowers and doing whatever they can to discourage the assumption of further debt.”

Last week the Government Accountability Office issued its first report on the bailout, noting that Treasury has no way of knowing how bailout funds are being used by financial institutions. This week a congressional oversight panel issued a report with similar conclusions, and the House and Senate passed measures requiring banks receiving bailout money to report on their lending. After first rejecting the GAO’s recommendation that bank regulators track the spending of bailout funds, Treasury subsequently agreed to carry it out.

As Talking Points Memo points out, oversight of the bailout is getting underway two months after the program was initiated — and after virtually all of the first batch of multiple billions has been allocated. It may be “too little, too late.” Under one legislative proposal, we would find out next July whether bailout recipients are extending credit or just acquiring weaker institutions — and trimming their loan portfolios.

The Project on Government Oversight points out that a similar bailout program in the United Kingdom (instituted at the same time as ours) had far more stringent requirements on financial institutions, including banning executive bonuses and dividend payments until the government is paid back — and requiring recipients of bailout funds to maintain lending to businesses and consumers at last year’s levels.

Yesterday the Sun Times reported on another local company that, like Republic, went out of business after Bank of America shut off a credit line it had inherited when it acquired LaSalle Bank last year. Senator Durbin and Representative Gutierrez might push regulators to examine what’s happened to LaSalle’s business customers since the BoA acquisition. More generally, are big banks issuing blanket orders to shut down credit for businesses below a certain threshold — including businesses that were served by smaller banks that have been acquired, in some cases with bailout money?

Ultimately, as Rosen and Jobs With Justice have argued, the Republic workers dramatized the basic problem of the bailout, which has accelerated the concentration of wealth at the top that is squeezing the living standards and spending power of working families and dragging the economy into deeper crisis.


Finally, Mayor Daley has said he’ll try to recoup TIF money awarded by the city to Republic on the basis of promises of job creation. But he knows that TIF agreements contain projections of job creation or retention figures but no real requirements or clawback provisions.

Jeff McCourt of Good Jobs First-Illinois points out that Chicago and other municipalities successfully opposed efforts to include TIFs in the Corporate Accountability Act that was passed in 2003, which contained extensive reporting requirements and clawbacks if promises for job creation or retention weren’t met.

The Republic saga makes a good case for upgrading TIF accountability, McCourt said. As it is, the public can’t even examine the Republic TIF deal without filing a freedom of information request, he said.

He adds that “the people who run Republic apparently had enough funds to buy a similar operation in Iowa” where workers may be paid even less than in Chicago, which he called “disturbingly reminscent” of the kind of runaway shops that have plagued workers and communities for three decades.

Perhaps we need “some kind of data base of corporate bad actors who would not be considered suitable for government incentives in the future,” he said.

Illinois leads on sales tax loss

Illinois leads the nation in states tax revenue lost from diversions to retailers to compensate for collection costs, according to a new study by Good Jobs First.

The state loses an estimated $126 million a year to retailer compensation — far more than any other state — and it also leads the nation in sales tax subsidies as part of economic development packages for Wal-Mart.

Nationally, of 45 states which collect sales tax, 19 provide no compensation for collection costs; of 26 that do, 13 of them cap compensation amounts, most of them below $10,000. Good Jobs First estimates that states lose $1 billion a year through sales tax diversions — $70 million of which goes to Wal-Mart.

Vendor compensation allowances, instituted before computerization brought down accounting costs, create “a windfall for giant retailers like Wal-Mart,” according to GJF’s Phil Mattera. GJF urges retail compensation be modernized in light of technological advances.

GJF cites a study that found that sales tax collection costs range from 13.5 percent for small retailers to 2 percent for large retailers.

“It is frustrating that when our state’s huge, ongoing deficits have forced cuts to human service programs used by the most vulnerable members of society, Illinois continues to lose so much revenue to this practice,” commented Ralph Martire of the Center for Tax and Budget Accountability.

Illinois leads on Wal-Mart breaks

Looking at diversion of sales tax revenues to economic development projects, GJF found that Illinois by far leads the states in sales tax rebates for new Wal-Marts, with $41 million going to eleven Wal-Mart developments over the past decade. In addition, a Wal-Mart in Collinsville received $9.5 million in sales tax increment financing in 2004.

The total for Illinois is more than a third of the $130 million in development-related sales tax subsidies that GFJ estimates Wal-Mart has received nationally over the past decade.

Last year Good Jobs First reported that Illinois leads other states by a wide margin in public subsidies to Wal-Marts — including subsidies for new stores in Orland Hills, Belleville and Collinsville that replaced existing Wal-Marts (see June 2007 Newstip).

The group calls for reasonable limits on retailer compensation and for restricting economic development subsidies to bringing basic necessities to underserved areas.

Illinois Leads Nation in Wal-Mart Subsidies

By a wide margin, Illinois leads the nation in public subsidies to Wal-Mart, according to new data from the nonprofit research group Good Jobs First.

Illinois has given or promised over $150 million in state and local subsidies to Wal-Mart or to developers of shopping centers anchored by a Wal-Mart store – far more than any other state, according to data released by Good Jobs First in a new online searchable database,

After Illinois, the states with the most dollars going to Wal-Mart were Texas, Louisiana and Missouri, each with subsidies totalling between $90 million and $100 million, according to the data base.

Illinois also leads other states in deals concluded in the last three years, with $50 million promised in nine deals involving new Wal-Mart stores.

The Good Jobs First database updates a 2004 study by the group, which identified $1 billion in subsidies to Wal-Mart nationwide. In the last three years, at least $220 million in additional subsidies were granted.

One problem is the lack of consistent public disclosure of economic subsidies, said Philip Mattera, research director for Good Jobs First.

“Illinois has a relatively good disclosure system for the key subsidies given out at the state level,” he said. For subsidies from municipalities and other local entities, the group generally learned of deals from newspaper articles and followed up with local officials.

Subsidies include industrial revenue bonds, free land, infrastructure development, and abatements of property and sales taxes.

The largest subsidies in the state were for Wal-Mart supercenters in Country Club Hills – with property and sales tax rebates totalling $12.25 million – and Orland Hills, where $12 million in sales tax rebates have been promised for a supercenter that will replace an existing Wal-Mart.

Belleville is providing $9.9 million to a development with a Wal-Mart supercenter that will replace an existing Wal-Mart, which received a $7 million city subsidy for land acquisition and infrastructure improvement in 1994.

Similarly, Collinsville is providing $9.5 million for a development with a Wal-Mart supercenter that will replace a Wal-Mart store built in 1991 with financing from a $2.4 million IRB.

Public subsidies to Wal-Mart and other big-box retailers are “not good public policy,” Mattera said, since new big box stores “do not really stimulate economic growth but simply take business away from existing smaller retailers and threaten the jobs of their workers.”

Wal-Mart creates jobs with poverty-level wages and contributes to sprawl, he added. “Public money shouldn’t be used to encourage more of this.”

In addition to direct and indirect development subsidies, Wal-Mart employees in Illinois accounted for nearly $53 million in state and federal Medicaid spending, Good Jobs First estimates.

Big Boxes and Local Business

Mayor Daley’s veto of the big-box living wage ordinance in part reflects development policies skewed toward national chains, and local business advocates are arguing that Chicago needs to do more for locally-owned small business.

Economic development resources in Chicago have largely gone to big chain retailers and neglected locally-owned small businesses, argue Ellen Shepard of the Andersonville Chamber of Commerce and author Michael Shuman in a recent paper. Local businesses produce significantly more local jobs, purchase more local goods and services, and contribute more to local economies, they say. They also generate more tax revenue per square foot. City resources should be focused on promoting local business, Shepard and Shuman write.

Tax Increment Financing, the city’s largest development program, heavily favors national chains over local businesses. Last year only 9 of the city’s 130 Tax Increment Finance zones included Small Business Investment Funds, according to Jackie Leavy of the Neighborhood Capital Budget Group. SBIFs were created in 2000 in response to public demand that some TIF funds benefit existing community stakeholders.

A three-year-old NCBG study showed that less than 1 percent of $237 million in TIF funding for commercial projects outside the central loop benefited local small businesses. Neighborhood business groups have helped win increases since then, but it’s still “really token,” Leavy said.

Big box developments – often requiring assembling large land parcels and improving infrastructure – are frequent recipients of public largesse. Target Corp. has received nearly $10 million in direct subsidies from Chicago taxpayers, according to the Grassroots Collaborative. The developer building the new West Side Wal-Mart is also receiving significant subsidies, Leavy said.

“The city would be perfectly justified in requiring decent wage and benefits standards” from businesses receiving public subsidies, said Jeff McCourt of Good Jobs First Illinois, which promotes accountability in economic development policies.

Many TIF projects promise a certain number of jobs created, but there is little follow-up, advocates say.

Dan Swinney of the Center for Labor and Community Research points to successful labor-community ventures in Canada and Europe to argue that large-scale, locally-owned, high-wage retail development is a viable alternative that has been neglected here.

On the South Side, small business groups in seven communities are joining to conduct strategic economic development planning. “We’re focusing on what small business can do for itself,” with ideas like joint purchasing and marketing efforts, said Alicia Spears of the Business and Economic Revitalization Association of Grand Crossing. They’re working with Chicago State University’s Small Business Development Center and University of Illinois’s extension office.

“The Target in Chatham is the highest-grossing Target in the nation,” said Rhonda Harvey, community and economic development educator at UI Extension’s Cook County unit. “That’s increased [Target’s] income, but has it increased the per capita income in Chatham? Probably not.”

“Jobs Scams” – Chicago to Gulf Coast?

When Greg LeRoy returns to Chicago to talk about his new book, “The Great American Jobs Scam,” he’ll touch on local subsidies of corporate headquarters and TIFs — as well as the post-disaster reconstruction of Lower Manhattan and the Gulf Coast.

Subtitled “Corporate Tax Dodging and the Myth of Job Creation,” the book looks at the $50 billion which LeRoy estimates U.S. states and cities spend on job subsidies. What are called “business incentives” are really “tax scams,” LeRoy says — too often “paying companies to do what they would have done anyway.”

That may well include President Bush’s proposed Gulf Opportunity Zone.

LeRoy was research director at the Midwest Labor Research Center in Chicago for ten years before founding Good Jobs First, a D.C.-based nonprofit that promotes accountability in economic development spending, in 1998.

Among cases drawn from across the country, the book looks at the $56 million subsidy package given Boeing when the corporation moved its headquarters to Chicago — and consultant Arthur Anderson’s role “cooking up highly improbably ripple effect numbers.” LeRoy says Boeing moved here because “Chicago had what Boeing wanted” in terms of transportation, financial, and cultural infrastructure.

The book also examines the expense to schools and other public services of nearly 900 Tax Increment Finance zones in Illinois, including 135 in the city of Chicago.

Based on their experience watchdogging reconstruction funds for Lower Manhattan after 9/11, Good Jobs First recently joined other groups urging that Gulf Coast aid projects be monitored so low and moderate income people, displaced workers, and small businesses are included in benefits.

In New York City, requirements that HUD funds benefit lower-income residents were waived, and $20 billion in reconstruction funds “fueled gentrification and wage polarization” while slighting reemployment needs of low-income workers, according to a statement from GJF and other groups.

“If 9/11 is the blueprint for New Orleans, woe is the Gulf Coast,” LeRoy commented.

Bush has proposed tax-advantage enterprise zones and emphasized tax breaks to induce companies to return to New Orleans. Such programs “benefit a small number of large companies” but produce little in real economic results, LeRoy said.

He noted that despite calls to address poverty and racial discrimination, the administration has lifted prevailing wage and affirmative action requirements for federal contractors in the region; despite the health and environmental dangers of toxic flooding in New Orleans, environmental regulations for refineries are being lifted.

“While there will be a push from some quarters to address every problem with tax cuts and private deals, we believe the key to economic development is making sure public dollars are spent on public goods — infrastructure, culture, affordable housing, schools, and the like,” GJF and the other groups said in an open letter.

“In the absence of these public goods, tax breaks will not bring jobs back to the region. With them, tax breaks won’t be necessary,” they said.

The groups call for “a rebuilding plan that encourages broad public participation, strict rules targeting benefits to the most vulnerable survivors, and accountability safeguards.” Federal funds should put dislocated workers in good jobs, develop affordable housing, modernize refineries to reduce toxic emissions, and should go not just to”mega-projects” but also to “community-oriented development in which local stakeholders have a real voice.”

LeRoy added that there the administration has said nothing to date about rebuilding marshlands and barrier islands to protect the Gulf Coast from future storms.

One lesson from Lower Manhattan’s reconstruction project is that big players “moved very quickly to lock people out,” LeRoy said.

LeRoy will be speaking and signing his book at a program sponsored by the Illinois AFL-CIO, the Chicago Federation of Labor, and the Center for Tax and Budget Accountability, at DePaul University, 25 E. Jackson, on Tuesday, September 27 at 5:30 p.m. Reservations are requested at 312-332-1480.

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