Last spring, just before deep-sixing legislation that would have reformed the way public schools are funded, state lawmakers passed three generous tax breaks for certain Illinois businesses.
The technically arcane tax-code changes passed by wide margins and with little debate, so many were surprised when Gov. Jim Edgar subsequently vetoed all three.
This was exactly the right thing to do, for both fiscal and fairness reasons. It would behoove state lawmakers, now that the public is onto what’s afoot, not to embarrass themselves by trying to override Edgar’s vetoes at this fall’s legislative session.
The largest of the three tax breaks would change how the Department of Revenue computes what proportion of a company’s income is taxable in Illinois. The state now applies the three factors of payroll, property and sales, with a double-weighting on sales. The break would shift all to the “single-factor” of sales. So an Illinois-based multinational like Amoco Corp. or Caterpillar Inc. would pay taxes only on that portion of its income attributable to Illinois sales.
Proponents say lost revenues–estimated at $95 million the first year–eventually would be offset by increased business activity. They also point with alarm to other states, such as Iowa, that have adopted “single-factor.” They neglect to say that Iowa, with its steep 12 percent top corporate bracket, is playing competitive catch-up, or that property and payroll are good indicators of the cost burdens (for schools, roads, etc.) a company imposes on its home state, or that a majority of companies actually would pay more in taxes so that a few could pay substantially less.
The other two vetoed tax breaks concern the leasing of automobiles and of high-tech equipment. Currently a leasing agent pays full sales tax when it buys a car or computer. That expense is passed along, over time, as part of the rental fee. The proposed break would exempt leasing agents from the 5 percent state portion of the sales tax and replace it with a 5 percent lease tax on renters. Over time this would be a wash, but initially the state treasury takes a bath.
In his veto messages, Gov. Edgar correctly warns that today’s economic good times, which have helped Illinois gain some budgetary breathing room, are no excuse for giving away the store. Not when Illinois already is among the lowest-taxed industrial states–and certainly not before the legislature owns up to its duty to fund adequately the education of all the state’s children.
