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My rant on Governor Blagojevich’s Business Tax Proposal          Send a link to a friend

[March 31, 2007]  Although he was reelected on a platform of no new taxes, the Governor of Illinois, Rod Blagojevich, has proposed a Gross Revenue Tax (GRT) on Illinois businesses modeled after programs in Ohio, Texas, Delaware, Hawaii and Washington State.

According to his plan, manufacturers and retailers will pay .5%, and service-based companies will pay 1.8% of their gross income to the state.  The current state Corporate Income Tax of 4.8% will be phased out over the following 4 years.  Businesses which gross less than $1 million per year and exporters will be exempt from this new tax, but will continue to be subject to the Corporate Income Tax.  This new taxation is expected to generate between three billion and six billion dollars in new revenues for the State of Illinois.

Blagojevich has shown himself to be a thinker.  He has sold off state properties to raise revenue, and then leases those same properties back from the new owners to make short-term gains.  He wants to sell off the tollways, sell off the state lottery, and has put on a statewide hiring freeze to save or raise new money.

The purpose of this new taxation plan, according to Blagojevich, is to pay for universal healthcare insurance for those citizens of Illinois who are unable to afford it, and for a new income source for our public schools and public education.

The reason Blagojevich gives for taxing businesses is that he claims small and large businesses exploit tax loopholes and don’t pay their fair share to support state initiatives and programs.  According to Blagojevich, the majority of the tax burden falls on the shoulders of common citizens while businesses and corporations are growing fat.

In response, the Illinois House of Representatives has drafted their own proposal to Blagojevich’s GRT which raises income taxes on all citizens and corporations in the state to 5% and closes many of the corporate loopholes.  The House proposal reduces the state portion of local property taxes that currently fund the majority of public school costs (I like this proposal).

While the Illinois Legislature considers this proposal and others in their upcoming sessions, business groups across the state are lining up to oppose this new tax.  The NFIB (National Federation of Independent Business) has called for April 19th to be dubbed “GRT lobby day.”  Businesspeople are being urged to contact their state representatives and senators to let their disapproval be heard on this issue.  Their main point in opposition to the GRT is that it isn’t “fair” to charge businesses for the care of individuals.  The governor has countered with a state website addressing this “fairness” issue at, but the rhetoric on the website seems circular, obtuse, and is fraught with grammatical, emotional and logical problems.

My observations and opinion of this Blagojevich proposal is that there are three falsehoods that surround this approach:

1.                  Let’s tax businesses because they have plenty of money.

 As you know, there are two major political parties in this country: the Republicans and the Democrats.  These two parties are polarized on many different issues, and seem to be especially polarized on the issue of business (Republicans) vs labor (Democrats). 

 When the Republicans are in the majority, they favor businesses both small and large with legislation that makes it easier for business to earn money and keep more of it.  They also seem to do away with social programs which make the people along the margins of society lose benefits.  The operating concept here is that people are better off when they have to work for what they get, and are rewarded for their struggle.

 When the Democrats are in the majority, they vilify businesses and business people, and favor laborers and the people along the margins.  Democrats pass legislation that removes the Republican favors for business and put in place programs which reseat the power of labor unions and increase federal, state and local programs to share this country’s wealth with the less fortunate.

 The citizens of our nation and our state have benefited from a balance of both approaches.

 Blagojevich, a Democrat, believes businesses should get less favors and pay more to fund social programs like healthcare and education.

 It is a mistake to believe that all the businesses that operate in Illinois are awash in cash that they are hoarding, and therefore should pay their fair share.   According to census figures, the majority of businesses in Illinois are small businesses, employing less than 25 people.  The majority of people employed in this state and this country work for these small businesses.  In fact, the majority of businesses are what are called “mom and pop” shops, with fewer than 5 employees (if you don’t consider mom or pop an employee).  And according to national experts like the NFIB, most of these businesses are marginal, and mom and pop usually live one year above the poverty line and the next year below the poverty line (the feast and famine cycle).

 Mom and pop live marginally, many not being able to afford their own health insurance, putting all their earnings back into their business with the prospect that they might actually make a go of their dreams and efforts.  National figures report that 80% of new businesses fail within the first 2 years.  Mom and pop, who put their savings and their earnings into their business and even went into debt for their business now are left only with the debt.

 Blagojevich says he understands how hard it is to be in business and has made the GRT fair to struggling businesses.  The first $1M in gross income is exempt from the GRT, and those businesses will instead continue to pay the CIT (Corporate Income Tax) of 4.8% instead.   What Blagojevich doesn’t seem to understand is that gross income is not an indicator of business health or wealth.  In this age of falling margins and rising costs, the net income is where there is margin to pay added expenses, not the gross income. 

 I am sure there are numerous businesses in this state that can shoulder the added burden of the GRT without flinching.  Those businesses will probably spend money to find loopholes to avoid the GRT in the same manner they currently avoid the CIT.  But the majority of businesses in this state will be further burdened by yet another added Blagojevich tax or fee.

Believe me, small businesses are not hoarding all the money.

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2.                  Taxing businesses will cause them to pay their fair share

Blagojevich claims that loopholes in the state tax laws allow businesses to avoid paying their fair share to fund social programs in the state.  But instead of attempting to fix the tax code, he is instead putting a new tax code into place that affects only one portion of our citizenry – businesses.

In reality state tax codes have graduations and loopholes for private citizens who are “labor,” for those who are below the poverty line, and for businesses which are struggling to opt out of paying taxes.  Our tax philosophy seems to be that those who are making it should pay for those who are not.

Blagojevich, a Democrat, wants to close the loopholes and considerations on only one group of taxpayers – businesses, to pay for the benefits to another group, the citizens.

In truth there are some really misaligned loopholes which allow businesses as well as citizens to opt out of paying their fair share, but it seems unfair (to borrow Blagojevich’s word) to close the loopholes to one group and allow the loopholes to persist for all the others, especially since none of the proposed benefits of this added taxation will be applied to businesses.

Businesses will have to raise prices and cut costs in order to operate within these new guidelines.  This will affect the marginal peoples because they will be able to buy less and will have less opportunities for employment.

In our current tax code, businesses already pay the lion’s share of sales taxes, property taxes, state and federal taxes, as well as fees and judgments to the government.  If you want to use the word “fair,” then close the loopholes equally for every taxable entity, not just one.

3.                  Health Insurance will cure our healthcare crisis

 I went to the doctor about two month ago with a problem – slight pains in my upper left chest that I had been having for 2 weeks.  My doctor prescribed specific testing to determine what kind of problem I actually had to make an accurate diagnosis. 

My insurance company responded two weeks later that they would not pay for that prescribed testing even though they admitted it would provide an accurate diagnosis.  My insurance company, one of the nation’s top health insurers, said I could pay for the test myself or have some other less accurate testing done.  However, when I was having a heart attack then they would pay for the test.  Since that time, fortunately, those symptoms have gone away.

One of the problems of popular government is that they often fail to do the right thing and do the popular thing instead.  It is popular to get somebody other than the private citizen to pay for medical costs, and so politicians are garnering support to push for state funded medical insurance for marginal peoples in order to take care of our healthcare crisis.  The insurance lobby suggested it and insurance companies will be the biggest beneficiaries of this concept.  The insurance companies can negotiate with healthcare providers, and everyone will live happily ever after, especially since cash-hoarding businesses will be footing the bill for the less fortunate.

But insurance companies will then be in charge of my health and will not responsibly guard my welfare because they are responsible instead to make a profit for their stockholders.  My health and welfare will only ever be a secondary consideration.


What will happen is that there is currently Blagojevich's proposal, the House's proposal, and will probably be an Illinois Senate proposal.  These three parties will probably sit down and try to hammer out an agreement but will not be able to bridge the gaping differences between them, and this whole matter will be dropped.  The politicians will wring their hands and say to the voters, "I tried to make a difference" during their next campaigns.

[Jim Youngquist] 

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