Corporate tax break bidding war heats up
RICH MILLER email@example.com October 27, 2011 6:10PM
Updated: November 29, 2011 8:19AM
An expensive bidding war is escalating at the Illinois Statehouse and it needs to be slowed down.
Gov. Pat Quinn met with the four legislative leaders Thursday morning. Much of the discussion centered around CME Group’s threat to leave Illinois unless it gets a tax break. CME owns the Chicago Mercantile Exchange and the Chicago Board of Trade, among other things.
CME says it pays 6 percent of all Illinois corporate income taxes, making it the state’s largest taxpayer. The company also claims that the recent income tax increase cost it an extra $50 million a year. Its executive chairman, Terry Duffy, has repeatedly warned that he’s furious about his company’s tax burden and is seriously contemplating a move to a more favorable location.
The problem is that Illinois bases corporate taxes on in-state sales and CME records all of its transactions that way, even though lots of transactions are occurring in other states and other countries. When Caterpillar sells a bulldozer in Germany, Illinois doesn’t tax that income. But when a CME trade is executed in Japan, that income is taxed by Illinois.
Our corporate tax system was changed several years ago at the behest of companies like Caterpillar. As a result, Cat paid less and CME paid more.
If Illinois readjusted its tax code, Cat would scream bloody murder. Caterpillar already was involved in one scary blowup this year over the state’s business climate. Nobody wants to poke that giant again.
So, the options are adjusting CME’s taxes or letting it leave. The state budget would take a huge hit if CME left, so we’re back to a tax cut. The problem is, the legislation drafted by Senate President John Cullerton would reduce CME’s taxes by $75 million a year. That’s a 50 percent cut. The Senate Republicans say CME’s taxes would actually fall by $100 million a year.
To sweeten the pot and attract Downstate, suburban and Republican votes, Cullerton offered to reinstate the corporate research and development tax credit, which would cost the state as much as $30 million a year.
However, the Republicans want more. House Republican Leader Tom Cross insisted Thursday that a $500 million tax cut package be considered as part of the deal. Cross also wants the R &D reinstatement, so the total amount of tax cuts on the table right now is somewhere around $600 million.
All of these tax cuts have legitimate arguments in their favor.
But big tax cuts are stupid at a time when Illinois can’t pay its own bills unless the tax reductions produce lots of new state revenue by providing strong economic stimulus or prevent significant revenue losses by convincing companies to stay put. According to the comptroller’s office, the state owes roughly $6 billion in past-due bills, including $600 million in unpaid corporate income tax refunds.
So, we’re gonna cut corporate taxes by $600 million when we can’t even afford to pay corporations $600 million in tax refunds? One of the problems we’ve had in this state for 20 years is that expensive deals were cut by the leaders behind closed doors and then legislators rubber-stamped the agreements. A careful, legitimate process is under way in the House Revenue Committee to look at reforming the entire corporate tax code. That ought to be given time to ripen before the state makes any big moves.
And Cullerton’s CME proposal is just way too rich. The company should get a significant break, but $75 million to $100 million is too much to ask for a company with healthy pretax profits of about $2 billion a year.