Friday, March 02, 2007

New tax targets firms

The piece below states that the tax plan puts a burden on businesses. The fact is it puts a burden on everyone except for those that will benefit from the income redistribution and that would be the education industry and those involved with socialized medicine. When you tax businesses it risks jobs and the increased tax burden is shifted on the buyers of the businesses products. This is a lose, lose, win situation. The only ones who are winning are those that benefit from income redistribution or the tax increases.

The following piece appeared in the Daily Herald.

New tax targets firms
Plan puts more tax burden on businesses

By John Patterson
Daily Herald State Government Editor
Posted Friday, March 02, 2007

SPRINGFIELD — Gov. Rod Blagojevich is expected to roll out a dramatic change next week in how businesses pay taxes in Illinois, a move that could raise billions for health care and education spending but which already has business interests howling.

Specifics are unlikely before the governor’s March 7 budget speech, but the general idea involves doing away with the corporate income tax and instead imposing a tax on virtually every transaction businesses make.

The concept is to put a relatively low tax rate on all the money that comes in the door rather than a higher tax only on company profits.

Illinois isn’t alone in considering this. Ohio and Texas enacted similar tax policies in recent years.

The bottom line result in Illinois could be upward of $7 billion in new tax revenue flowing into state coffers, money Blagojevich sorely needs to shore up previous populist programs, such as his children’s insurance plan, and launch new ones, all while keeping his campaign mantra of not raising the state’s sales or income taxes.

Supporters of the idea describe it as restoring fairness to the state’s tax structure, saying more than half the Illinois corporations do not pay the state’s corporate income tax.

Doug Kane, a former Illinois lawmaker and president of a Wisconsin-based economic consulting firm, said the state’s existing tax structure no longer represents its economy and, as a result, a greater burden increasingly falls on individuals. Switching to this new tax structure would reverse that trend and at the same time ensure every business pays, if for no other reason than the loophole-filled corporate income tax system would be abolished.

“The advantages of a gross receipts tax are: one, the simplicity; two, the very broad base which allows a very low rate,” said Kane, who’s been retained at $125 an hour by the Blagojevich administration to help make the case for such a tax change.

He notes Republicans and business groups have led the push for similar tax policies in Ohio and Texas.

But Illinois business groups aren’t convinced, with makers of everything from bottle caps to bulldozers fearing they’ll get soaked.

Hardest hit, critics say, are major manufacturers relying on myriad supply chains and companies with low profit margins whose daily business consists of numerous small transactions.

“Good year or bad year, you’re going to get hit on your sales and not on your profitability,” said John L. Mikesell, a government finance professor at Indiana University.

“Almost anybody who’s done graduate-level work in economics is going to be against that turkey. The only exception is politicians,” Mikesell said. “There’s literally nothing good that can be said about it.”

As for other states, Mikesell notes Ohio businesses backed this kind of tax as a replacement for a system they despised even more. Nor are all states rushing to impose these taxes. Indiana has done away with its gross receipts tax.

Back in Illinois, the pending proposal almost certainly will create an all-out lobbying war at the Capitol, as virtually every business entity is already lining up to fight the plan. On the other side are myriad education, health care and other interest groups who covet state funding for their programs and have no shortage of ideas for how to spend more tax dollars.

In between are lawmakers who, on one hand, don’t want to appear overly anti-business but on the other hand will have the Blagojevich administration tempting them with the opportunity to come up with billions for spending without having to go home and defend a tax hike to the general public.

Business groups, however, are already emphasizing that such a tax will result in higher prices and the fingers should point to Blagojevich.

“The governor’s going to impose the largest tax on the people of Illinois, period,” said Greg Baise, president and chief executive of the Illinois Manufacturers’ Association. “They’re going to pay for it.”

But supporters dispute the guarantee of higher prices and say such criticism ignores the bigger problem of how to fix the state’s overall tax structure.

“It’s way too easy to trash a tax individually,” Kane said. “No tax is good.”

The question Kane has for critics is, if not this tax, then which one?

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