A couple of week ago Illinois House Speaker Michael Madigan announced his intention to introduce legislation to cut the corporate state income tax
rate – that is, the rate applied to business profits — from 7% to 3.5%.
Madigan said on announcing his plan, “I am hopeful this legislation will
encourage CEOs to grow their work forces with good paying jobs.“
Life is short, so I’ll keep this brief. One, the big
companies don’t need it, as they pay little or no state income tax as it is.
Two, the Madigan plan leaves untouched the personal income tax rate, which
affects many more of the small businesses that do need help. Three, businesses
are not growing their work forces because there is no demand for what they
sell, and a big reason for sluggish demand is the fall in the real incomes of
the middle and working classes as an ever-bigger share of business revenues are
paid out in the form of stock options and salaries to top managers rather than
in wages to workers; for that reason, and to that extent, CEOs are job killers,
not job creators.
As for the larger wisdom of the remarkable notion that it is
government’s responsibility to support businesses, rather than the other way
around, I offer evidence from the recent report from Good Jobs First. That analysis found that
the cost of tax breaks and
corporate subsidies in ten big states often exceeds what is spend funding
public employee pensions. In Illinois, the give-aways range from location
incentives to the EDGE tax credit, separate tax credits for film production, research
and development, and enterprise zone investment, the exemption for Manufacturing
and Assembling Machinery and Equipment, an electricity excise tax for
enterprise zones, and a Manufacturers’ Purchase Credit, a cap on the Franchise
Tax for Corporations. Add to that the money lost as a result of our
international companies’ use of offshore tax havens, the biggest cost of all.
Add it up and it comes to $2.4
billion; the cost to the state of pensions is about $1.9 billion.
 Now of course business is
hardly alone in being subsidized by tax breaks and incentives, such as the
mortgage interest deductions and employer-paid health insurance enjoyed by the
middle class. But those too are, ultimately, business subsidies, to the
housing, finance, and insurance industries.
I
am not convinced by John McCarron’s argument in the Tribune
that Madigan’s proposal was merely a bargaining chip in a comprehensive reform
of the state’s revenue system. I don’t know what he’s thinking of. Whatever it
is, he needs to think again.Â
This article appears in Feb 13-19, 2014.
