2/22/2007 2:41:00 PM Editorial Taxes may need to go up, but this idea really stinks
This may be the year the General Assembly steps up to do something about Illinois' fiscal mess.
Even Rep. Roger Eddy (R-Hutsonville), a staunch opponent of tax increases and a strongly pro-business legislator, acknowledged in his newspaper column Monday that the state is going to have to do something just to fund the programs created in the past several years, much less pay for new initiatives like universal health care and school construction.
Gov. Rod Blagojevich has stubbornly stuck to his initial campaign promise not to raise sales or income taxes, but he might face pressure this year from his own party, which dominates the legislature, to "revise" his position. So everything appears to be on the table. But some of the ideas are definitely better than others.
Possibly the worst proposal of the bunch is levying a gross-receipts tax. Such a tax would be applied to all sales made by a business, whether or not it is making a profit, or even losing money - compared to income tax, which is applied to a company's income after deductions.
Why is this a bad idea? Let us count the ways, with some help from a Springfield State Journal-Register report:
As noted above, it doesn't matter whether your profit margin is 40 percent, or you're running in the red - everybody pays, up front. "Every dollar they take in, they will have to give some percentage to the government," David Vite of the Illinois Retail Merchants Association, told the Springfield newspaper.
It would unfairly hurt smaller businesses. They would pay the flat rate (1 percent is the figure being talked about at this point), the same as large corporations. The gross-receipts tax is among the most regressive taxes that can be levied.
A raw material could conceivably be taxed several times before it becomes a finished product, raising costs for both the business selling the product and ultimately the consumer.
It makes it hard for Illinois to compete with other states that have friendlier tax structures for attracting new businesses - or retaining existing businesses. Depending on what interest group you ask, Illinois is already among the least attractive states for business development.
It makes it hard for Illinois businesses to compete with those in other states, simply because it costs more to be in business here. The spectre of a business exodus is raised every time tax proposals are introduced, but this one might actually make some businesses leave.
It will ultimately show up in the prices consumers pay. With utility rates going up, working-family budgets are already being squeezed tighter and tighter, and this certainly won't help - with savings, credit-card debt or simply day-to-day living.
You would think such a bad idea would die a quick death in the legislature, no matter which party was in control. But, as Kim Maisch of the National Federation of Independent Business said in the Journal-Register story, "Politicians like this tax because it is small (as a tax rate) and broad-based, and doesn't hit consumers in the face right away. But it will ultimately show up in the price of goods that consumers buy."
While business groups often have knee-jerk reactions to tax proposals, in the case of the gross-receipts tax the rhetoric is probably justified. It may be politically palatable and may raise a lot of money ($9 billion is one estimate), but there are certainly fairer ways to get Illinois where it needs to be fiscally.
It's early in the game, but not too early to nip this one in the bud. You can make a difference; keep watching the news from Springfield, and let your legislators know what you think. Their contact information is at the bottom of this page.