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 Gov. J.B. Pritzker says one of his top priorities for the “lame
duck” legislative session will be to increase taxes on Illinois small
businesses. The governor wants to eliminate state-level tax benefits created as
a form of economic relief when Congress passed the Coronavirus Aid, Relief, and
Economic Security (CARES) Act.
“There are a number of things that I think should be taken up in the lame duck
session – which again is relatively brief – but one of them, which not many
people have talked about, is a decoupling issue,” Pritzker said during a Jan. 6
press conference. “There’s a tax provision, as a result of the CARES Act
passage, that would essentially deprive Illinois of revenues that it otherwise
should get.”
Illinois automatically mirrors certain federal tax changes in the state income
tax code unless lawmakers pass a bill to prevent it. The governor called his
proposal a “technical fix” and claimed it would be good for everyone in the
state. In reality, the legislative change he is proposing would increase the tax
liability for small businesses when many can least afford it and impede economic
recovery from the COVID-19 crisis.
Illinois lost 20,000 jobs from October to November, while the nation overall has
experienced seven straight months of job growth. The state’s 6.9% unemployment
rate remains above the national average. Many businesses are still operating
with restrictions imposed by the state to limit the spread of COVID-19, such as
an indoor dining ban and the same for bars.
A December survey by the National Restaurant Association found that across the
nation the average full-service restaurant had lost 36% of its sales revenue. It
found 17% of restaurants have already closed permanently or long-term as a
result of COVID-19 and measures taken to limit its spread.
Congress passed various forms of stimulus spending and tax relief in the CARES
Act to help businesses and individuals deal with these economic challenges. One
of those changes was to offer additional tax benefits for businesses that
experience losses.
The CARES Act allowed businesses to carry back “net operating loss” deductions
up to five years for losses that occur between Dec. 31, 2017, and Jan. 1, 2021.
In other words, businesses could receive tax credits today for income tax
returns in previous years in which the business was profitable.
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The CARES Act also eliminated a cap that previously
limited loss deductions to 80% of taxable income, allowing business
owners to offset their full tax liability in a given year. Both
changes gave businesses additional access to cash to help them
survive the pandemic-related downturn.
A press release from the governor’s office on Jan. 8 inaccurately
referred to these tax provisions as “corporate tax loopholes” and
estimated eliminating them would raise $500 million towards closing
the state’s budget deficits. Illinois already does not conform to
the CARES Act provisions on business losses for corporations.
Pritzker is proposing limiting the deductions for pass-through
entities such as S corporations and partnerships, which tend to be
small businesses. The governor also wants $20 million from
eliminating smaller business tax credit expansions that were passed
in 2019.
The Tax Foundation has recommended states maintain
full conformity with federal tax treatment of net operating losses.
The business loss deduction benefits in the CARES Act provide
struggling companies with new tools to stay afloat during tough
economic times, helping minimize job losses and business closures.
Rather than increasing taxes on struggling businesses, lawmakers
should commit to pension reform and structural changes that can
balance Illinois’ budget while respecting taxpayers and promoting
healthy economic growth.
A constitutional amendment to allow pension reform that preserves
workers’ earned benefits and allows for changes in unaccrued
benefits, such as 3% compounding automatic annual benefit increases,
would make the system more sustainable and make pensions more
secure. A “hold harmless” pension reform plan developed by the
Illinois Policy Institute would save the state roughly $2.4 billion
the first year and more than $50 billion through 2045, while fully
eliminating the debt over that time.
Taking away $500 million intended to help small businesses stay
afloat during COVID-19 would inflict more damage on the group that
has provided nearly 60% of Illinois’ net new jobs in recent years,
and it won’t fix Illinois’ spending problem.
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