In order to balance next year’s state budget, Governor JB Pritzker is calling on lawmakers to remove the loopholes his administration has labeled “corporate tax loopholes” in order to generate nearly $ 1 billion a year in revenue.
However, some business leaders say that removing so-called “corporate tax incentives” would affect the ability of many business owners to recover from the financial hardships caused by the COVID-19 pandemic and could result in lower government revenues in other areas.
Pritzker’s budget team targeted items they considered out of date or unfair. Some would change corporate tax policies that the state enacted nearly 70 years ago, while others are the result of federal policy changes made during former President Donald Trump’s tenure.
“This will be one of the toughest budgets this government has ever had to set up, but I know there are willing partners in the General Assembly,” said Pritzker. “Compromise, hard work and a willingness to make difficult decisions are required of all of us.”
Some critics argue that these difficult decisions are wrongly placed on the shoulders of business owners.
According to Todd Maisch, CEO of the Illinois Chamber of Commerce, eliminating any or all of these corporate benefits could destroy stimulus plans.
“They are potentially devastating, and the use of the term ‘void’ is so deliberately wrong that it is a political travesty,” Maisch said. “The idea that this is accidental exploitation is absolutely wrong. These are tax incentives to keep companies competitive.”
Ralph Martire, executive director of the bipartisan Center on Tax and Budgetary Responsibility, said the proposed changes all make sense if the other option is to collect taxes.
“You will scream and scream, but if you really look at what the governor’s office put on the table, you will quickly realize that these are likely changes that should come off the books,” Martire said. “Everyone, including the legislature, suffers from tax fatigue, but something still needs to be done in a state that has not invested in core services for years due to structural deficits and poor tax policies.”
As currently proposed, eliminating or capping the nine items is expected to generate $ 932 million a year, the governor said.
According to Deputy Governor Dan Hynes and State Treasurer Alexis Sturm, the state would see $ 314 million more annually if tax deductions for corporate net operating losses were capped at $ 100,000. About 20% of Illinois businesses would be affected by this change, Sturm said. The change would go under after three years.
Next, the state could generate $ 107 million annually by taking back a Trump-era benefit for withdrawing dividends from abroad. Multinational corporations are currently receiving more favorable treatment for deducting shareholder profits from their overseas subsidiaries than domestically generated dividends, according to budget officials.
“This is an example of a void within a void,” said Hynes. “This really is a giveaway for businesses of the highest order.”
Another Trump-era policy that Pritzker seeks to eradicate is allowing companies to claim 100% depreciation allowances on company assets in the year of purchase. Sturm said the budget plan called for legislation that would bring the allowable deduction back to the standard depreciation plan, generating $ 214 million annually.
The state could also get $ 107 million more a year by expediting a biodiesel tax exemption, according to state budget documents.
The budget also calls on lawmakers to reverse the corporate tax waiver and reset tax credits for private school scholarships. And the proposal would remove a tax exemption on office furniture and other manufacturer-claimed assets that were used solely for the manufacture of machinery. Together, these changes would gross the state an estimated $ 100 million.
A freeze on income tax credits for “payroll expenses” would generate an additional $ 16 million, according to the state.
The final piece calls for the state to cap a “retail sales tax rebate” to $ 1,000 a month to generate $ 73 million a year. Currently, retailers can withhold $ 1.75 for every $ 100 of sales tax generated on purchases to offset the cost of collecting and billing those taxes.
“This is an ancient relic from an agreement that was made in the 1950s to implement sales tax,” said Hynes. “But then it was a much more complicated process than it is now.”
The change wouldn’t affect 99% of retailers in the state, budget officials said.
But Maisch is not convinced.
“Even if you’re a retailer who wouldn’t be affected by this current proposal, any retailer knows that it’s only a matter of time before it’s on the menu,” he said.
All nine proposals require legislative support, but there are already concerns from both sides of the aisle.
Rep. Fred Crespo, a Democrat from Hoffman Estates, said he doubted the governor could have lawmakers make these changes.
“I am always concerned about having assumptions built into the budgets that may or may not occur,” said Crespo. “When he closed those business loopholes, he valued it at nearly $ 1 billion. … We don’t hear that this is going to happen.”
Rep. Mark Batinick, a Republican from Plainfield, said losing those perks could hinder job creation.
“This is not a good time to drive a company big or small out of Illinois,” he said. “You have many options. Many other countries have a much friendlier business climate. We need more jobs and we need more people.”
Martire disagrees that tax breaks offered to businesses help boost the economy.
“There has never been a statistical, meaningful correlation between changes in tax policy and job creation. Even at the federal level, where taxation is more meaningful, researchers found no correlation between increasing or decreasing tax liability and job creation or loss Establish company, “he said. “As it is now, that’s $ 932 million in government tax spending that is doing the public no good.”
• Daily Herald staff writer JJ Bullock contributed to this report