April 2007

HB 750 Is Just as Bad

ArchPundit April 5, 2007 4 Comments

The stunning thing to me about the battling between Democrats over HB 750 and the GRT is that both reinforce the regressive nature of the Illinois tax system. HB 750 seeks to increase the flat tax on income while reducing property taxes. While I think property tax relief is extremely important in parts of the state, it also tends to be somewhat progressive with notable exceptions of farms and properties in rapidly increasing land values.

Democrats are willing to fight a huge battle over reforming taxes and making them ‘fairer,’ but no one is introducing a proposal to actually make the system progressive.

Everything being said about the corporate loopholes is correct, but the solution is only barely better than the status quo.

The solution for Democrats should be to change the Illinois Constitution and allow for a progressive income tax.  In a state that is now strongly blue and has the ability to pass such a change with the strong united voice of state leaders there is no excuse.  I am not one for ideological purity in a party, but there is no excuse on a basic issue of fairness like this for any Democrat to try and say it cannot be done.

Also, this would allow a relatively easy fix to the loophole problem that advocates of the GRT keep hyping–use a progressive business income tax on profits and hit large businesses that aren’t paying anything with an alternative minimum tax (AMT) that operates like a GRT as a backup.

The current solutions will simply further institutionalize regressive tax structures.  This is an issue that any fool should be able to sell and it’s the right thing.  Democrats have won the last two elections, let’s make them count for something.

A GRT Example

ArchPundit April 2, 2007 1 Comment

A commenter left a comment that was thoughtful, but I’d argue wrong on the GRT post:

“large out of state retailers are benefited by the GRT at the expense of small, local businesses”

This is incorrect. I would say that the GRT actually impacts those out of state more – since they are the ones who are able to get away with paying nothing.

I think the biggest impact this will have is on those companies that are based out of state but sell to people in Illinois. They can hide their income (and have been), but not their sales.

Additionally, when you take healthcare into the calculation – that is something that actually affects a businesses’ bottom line. You cannot exclude that when making calculations on how it will affect them.

A businesses with 20 employees that can save $50,000 per year on their health insurance costs isn’t going to give a damn about $5,000 in taxes.

His point isn’t invalid, but I think it misses the point of what I was saying and what the report was saying about the pyramid:

No, there is only one transaction for them with the tax in place. So if they are selling pork from Iowa, the only tax is upon the sale in Illinois. If, however, we are talking about pork raised here, slaughtered here, processed here, goes to a distributor here, is then sold to a market here and then sold to a consumer in Illinois the tax is payed 5 times. That’s the point of the pyramid structure of the tax. Out of state companies are advantaged because they don’t have the same costs of the tax if the pork is all, but sold to the consumer elsewhere.

In that case, the tax hits twice–the sale from the distributor to the market and the market to the consumer.

Rod and the Terrible, Horrible, No Good, Very Bad Tax

ArchPundit April 2, 2007 10 Comments

Via Dan Johnson Weinberger

The GRT is a really dumb idea according to the Institute on Taxation and Economic Policy

They testified at the hearings 

And they have an Issue Brief 

One on the Blagojevich plan 

This is a Terrible, Horrible, No Good, Very Bad tax.
From the ITEP report and echoing what I wrote the other day:

GRTs are not sensitive to a business’s ability to pay.  Businesses that fail to turn a profit would still face a GRT; businesses that are engaged in high-volume, low-profit-margin activities would be adversely affected as well.  Conversely, businesses with very high profit margins could pay lower taxes under a GRT than under a corporate income tax.

But just as important:

GRTs lead to severe pyramiding problems.  Since a GRT applies not just to retail sales, but to all stages of the production process, it may be levied on itself multiple times. For instance, the GRT paid on the raw materials going into a particular product will later be subject to GRT when the finished product is sold to a wholesaler.  One examination of Washington’s gross receipts tax found that it pyramids 2.5 times on average.

And this is especially problematic when you think about the economies in depressed communities and neighborhoods.  It won’t matter much to Walmarts, but the local shop owners who are often the provider of basic  goods in many poor neighborhoods almost always go through distributors and other middlemen to get their products meaning the impact of the tax is felt by those ultimate purchasers in the community and neighborhoods and  large out of state retailers are benefited by the GRT at the expense of small, local businesses.