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Two major tax-increase proposals are competing for
support in the Legislature. You’ve probably read about both, but you
may not know the whole story. The governor has a huge tax-hike proposal on the
agenda. It’s called a gross-receipts tax, and it basically means that
every dollar a business brings in the door is subject to taxation, without
regard to whether the business is actually profitable. The tax kicks in after the first million
dollars, which sounds like a lot but really isn’t. Plenty of
businesses run on low profit margins. They may sell a
couple million dollars’ worth of goods or services, but
their profits might only be a small percentage of that.
The governor has claimed that his proposal is all
about “tax fairness” because “fat cat”
corporations are not paying their fair share of income taxes.
He’s right about the corporations’ avoiding taxation, but a
family-owned restaurant that sells a little over a million
dollars’ worth of food every year — and they are many —
isn’t what you would normally think of as a fat cat. State Sen. James Meeks, D-Chicago, claims that Gov.
Rod Blagojevich’s chief of staff told him that if the state moved the
minimum taxation level from $1 million to $2 million, the government would
lose $450 million a year in revenue. Meeks believes that the
“real” money from this proposed $6 billion tax hike will come
mainly from small and medium-size businesses, not giant multinational
corporations, and I’m betting that he’s right.
Meanwhile, Meeks is supporting House Bill 750, which
is almost universally described as a tax swap. In the past, similar
legislation “swapped” a large income-tax increase for large
cuts in the property tax. What’s almost never mentioned, however, is
that this new legislation would extend the state sales tax to all sorts of
services. The Center for Tax and Budget Accountability, which
also backs the Meeks bill, estimates that the revenue generated from those
new service taxes would come to about $2 billion in the first year. The idea of taxing services is fiscally sound. The
service sector is where the real economic growth is, so current state
income- and sales-tax revenues aren’t keeping pace with the growth of
the economy. But implementing such a broad tax on services has in the past
proved politically difficult: Many service- oriented businesses have
close contact with their regular customers, and they’ve been able to
use those relationships to pressure state legislatures all over the
country to beat back service taxes. Barbers tend to be the most outspoken,
and they have extremely loyal customer bases. In addition to barbers and beauticians, the
legislation would tax such services and businesses as travel agencies,
computer repair, carpet-cleaning services, dating services, dry
cleaners, storage units, nail and skin care, consumer-goods rentals,
diet services, private-investigation services, bail bonds, photo
studios, interior designers, collection agencies, auto
repairs, parking lots and garages, towing services, amusement parks,
racetracks, bowling alleys, cable TV, golf courses and country clubs,
fitness and recreational sports centers, sports teams, performing arts
companies, miniature golf, sightseeing tours, limo services, movie
theaters, and more. If this bill remains unchanged, then it will be a
Statehouse lobbyist’s dream come true. They’re already working
overtime against the governor’s gross-receipts tax, but this will be
like Christmas in springtime for the lobbyists, who will sign up tons of
new clients. Meeks said last week, however, that everything in the
bill is open to negotiation and particularly noted that if House Speaker
Michael Madigan didn’t want something in the bill, he’d be more
than happy to take it out. The legislation also eliminates long-standing
sales-tax exemptions for newsprint and ink, although that’s one of
the items targeted for elimination by some House Republicans who would like
to vote for the final bill. They’d better get rid of it, or the
newspapers will throw a huge fit. Speaking of newspapers, the Illinois Press
Association’s board of directors, which includes newspaper publishers
from all over the state, voted last week to officially oppose the
governor’s gross-receipts-tax proposal. The
association’s staff will be directed to
“encourage” member newspapers to publish stories on the
“community or local impact” of the gross-receipts tax. When you
start seeing these negative stories popping up all over the
place, you’ll understand why.
Rich Miller publishes Capitol
Fax, a daily political newsletter. He can be
reached at capitolfax.blogspot.com.
This article appears in Mar 22-28, 2007.
