Illinois legislators OK corporate tax giveaway amid budget crisis

Illinois legislators can’t manage to come together to fund vital public services or higher education.  But when it comes to maintaining programs to give tax dollars away to big corporations, partisan differences can be overcome.

Early this week, in the final days of the legislature’s lame duck session, both the Senate and House easily passed a four-month extension for the state’s EDGE tax credit program, which gives tax breaks to businesses in return for promises that they’ll keep or save jobs. EDGE stands for Economic Development for a Growing Economy.

There are good reasons to doubt the value of incentives like this. There’s the question of whether they just end up providing public subsidies to corporations for investments they would make anyway, and whether they set off a race to the bottom as desperate states compete for deals.

EDGE in particular raises significant questions.  The Chicago Tribune examined the program two years ago and found that two-thirds of participating companies failed to maintain the number of employees they agreed to hire or retain.  The standards were so loose that two dozen companies got EDGE credits for jobs in one location even though they cut thousands of jobs elsewhere in the state.  State officials could not say how many jobs were created or retained.

EDGE is also part of an oddball set of incentive programs in 16 states that not only reduce business taxes, but also provide subsidies by diverting the personal income taxes paid by workers back to their employers.

Illinois’s EDGE was the fifth largest personal income tax, or PIT-based program in the nation, according to a 2012 report by Good Jobs First, a Washington, D.C. group that studies the effectiveness of economic development programs.

EDGES works differently in different states. In Illinois, EDGE offers credits against corporate income taxes based on the withholding taxes of employees in jobs they claim to have created or retained. But when an employer has no corporate income tax bill–as is the case for two-thirds of the state’s corporations–EDGE goes further: Employers keep the money they’ve withheld from employees’ checks for state taxes.

That’s wrong on a number of levels, said Greg LeRoy, executive director of Good Jobs First.  First, it undermines part of the justification for the subsidy, which is that the state will get a fiscal boost.  Second, diverting workers’ income tax payments  adds to the long-term erosion of income tax revenues, which is one of the roots of the state’s structural deficit.

“There’s no gain for the public,” said LeRoy. “The only gain is in corporate profits.”

Given the state’s budget crisis, he asked, “why are they renewing a program that’s both expensive and ineffective?”

A local advocate for closing corporate tax loopholes agrees.  “Legislators made a clear choice with their bipartisan vote to extend EDGE credits – a program that has been exposed for not being effective,” said Sue Gries, a leader of ONE Northside and co-chair of Fair Economy Illinois.  “They are prioritizing giving away our taxpayer dollars to companies instead of investing in the common good through public education, human services, and infrastructure.”

Gov. Bruce Rauner initially suspended the program and then tightened it up.  The credit now applies only to new jobs and requires a net job gain in the state.  Rauner has given out $125 million in EDGE credits – a big reduction from his predecessor, Pat Quinn, who doled out $1.3 billion. Among the new winners is Amazon (an exploitive employer whose business model seems to depend on government handouts), subsidized for opening distribution centers around Chicago.

Rauner reportedly supports a proposal to reform and rename the EDGE program, and House Speaker Michael Madigan recently called for continuing the tax credit.

We have better uses for those millions of dollars, Gries maintains.  And EDGE is just the tip of the iceberg.  Fair Economy Illinois has identified over $2 billion in corporate tax subsidies that it believes are wasteful and should be abolished.

“We need our legislators to close corporate loopholes instead of creating more giveaways for corporations,” Gries said. “We need legislators to come together in a bipartisan way to raise the revenue we need so we can create a state where everyone thrives.”