You may have heard that Illinois has some fiscal problems. Namely, there’s a multibillion-dollar deficit that’s currently scheduled to nearly double in the next two years.
So why is the legislature failing to act on a bill to close three corporate loopholes which subsidize economic activity by large corporations outside the state and cost Illinois nearly a half-billion dollars a year?
It’s frustrating for activists who have watched the state cut spending on education and social services by $4.7 billion over the past five years while corporate profits have soared — and two-thirds of Illinois corporations pay no income tax. It’s particularly frustrating because the three loopholes in question do nothing to encourage job creation in the state.
The domestic production deduction — which cost Illinois $139 million in 2009, according to the Center for Budget and Policy Priorities — is based on a federal deduction that gives businesses a write-off if they expand production anywhere in the country.
“A business that has an income tax liability in Illinois expands a plant in Missouri and they take a credit in Illinois,” said Ralph Martire of the Center for Tax and Budget Accountability. “It may make sense on a federal level, but as state tax policy there’s no rational explanation for it.”
Another loophole exempts airlines and financial and insurance firms from filing a single combined tax return, allowing them to hide profits in out-of-state subsidiaries. This costs Illinois $25 million a year.
“Most states that have a corporate income tax have a unified reporting system; Illinois is one of a handful that doesn’t,” said Martire. “So it’s not like [closing this loophole] would put us at any kind of competitive disadvantage. It’s just a giveaway.”
The third loophole covered by the bill is the exemption for dividends from corporate subsidiaries located overseas. This loophole encourages companies to export jobs overseas — and according to Martire, it also “encourages tax cheating.”
He explains: “You move your headquarters to a post office box in the Cayman Islands, that’s where all your income goes, and you dividend that back to the operating company in Illinois.”
Taxing foreign dividends would bring the state an additional $320 million a year, according to the Governor’s office.
At the founding convention of ONE Northside on Sunday, in front of 1,200 neighborhood residents, Governor Pat Quinn and Senate President John Cullerton both backed the loophole-closing legislation. Their support isn’t enough, however: in the House of Representatives, the measure was buried in the Rules Committee last month, with 17 Democrats voting to bury the bill.
Those are House Speaker Michael Madigan’s members, and that vote shows he’s not behind the bill, said Don Floyd, organizer for IIRON and the People’s Lobby. He says Madigan’s opposition “doesn’t make sense politically.”
Floyd rejects the notion that closing corporate loopholes would be perceived as a tax increase by voters. “It’s a popular issue that his people can run on — should corporations pay their fair share or not,” he said. “The Republicans are not going to touch this.
“It seems to me that Madigan is just kowtowing to the corporate interests that run Illinois,” Floyd added. “He’s afraid he’s going to get less money [in campaign contributions] if he takes a position on [the bill]. That’s the only thing I can figure out.”
Madigan has been speaker for most of the past three decades, during which the state’s fiscal situation has deteriorated steadily. He’s opposed progressive tax reform for just as long, most recently sinking a referendum to allow voters to decide whether to establish a progressive income tax. In this way, he’s maintained the state’s overreliance on property taxes — while personally raking in millions for his private law practice winning property-tax reductions for big corporations.
He’s the King of Illinois. Do we really want to be ruled by a king?