SPRINGFIELD — A tax break package meant to boost a business community hit by the GreatRecession could cost the state $848 million in just three years.
By Andrew Thomason
SPRINGFIELD — A tax break package meant to boost a business community hit by the GreatRecession could cost the state $848 million in just three years.
The only funding source specifically outlined to date for the package is a change to the Illinois tax code that would bring in $571 million next year and $354 million in 2013 before running dry.
At the same time, the provisions would cost more and more. By 2014, the state would face $848 million in lost tax revenue, a number that would only grow.
But that’s assuming no significant jobs are added or businesses expanded, the opposite of the intent of the package, state Rep. Ed Sullivan, R-Mundelein, said at a joint Illinois Senate and House Revenue Committee hearing Wednesday.
“If we’re stagnant, and don’t succeed, then we’re looking at that. But we’re anticipating this creating an economic climate to spur growth,” Sullivan said.
The heart of the tax break package is intended to keep two huge tax-paying businesses — the CME Group, which operates the Chicago Board of Trade and Chicago Mercantile Exchange, and Sears Corp. — from leaving the state after the income tax on corporations was increased by 47 percent. The tax hike is touted as “temporary” and is scheduled to expire in four years.
The tax incentives include CME Group and other mercantile exchanges, which deal in the financial markets, in Illinois getting a total of $85 million in tax breaks every year; Sears Corp. getting a tax credit of $15 million annually for the next decade; and about $40 million annually in research and development tax credits and other incentives for other businesses.
Also included is tripling of the earned income tax credit, a tax break for low-income families, that Gov. Pat Quinn insisted be in the final deal.
The change in the tax code to pay for these rebates would affect how businesses get tax deductions on the depreciation of their possessions. To encourage capital investment, businesses, since October 2010, have been able to deduct the amount of depreciation an investment will have over its lifetime at once instead of on a yearly basis.
In the proposal, the change would be retroactive to Jan. 1. Many small business owners said their budgets are built with the deduction in mind. For the state to tax purchases businesses have made would cause a huge financial strain, owners say.
Derrick Stevens is a co-owner of Stevens Implement Co. in Petersburg, which sells farm equipment. Customers can spend as much as $300,000 on an essential piece of farm and other equipment, Stevens said.
“We believe that bonus depreciation is one of the main reasons we’ve seen sales increase in 2011. Our customers use bonus depreciation … to make purchasing decisions,” he said.
Take away the tax break and Stevens said he and his 49 employees will watch business slow down.
Brian Dockery works as vice president of governmental relations at RiverStone Group Inc., a mining company in Moline, 130 miles north of Petersburg.
“We plan six months, 12 months, 18 months out on our business plan and our capital expenditures we’re going to make,” Dockery said. “We’ve gone almost 11 months through this year, so you can imagine the heartburn and heartache when one day it dawned on us (that) we would be liable for hundreds of thousands of dollars in taxes on this current year.”
It appears that even lawmakers’ support for the tax code rewrite is waning.
State Rep. Frank Mautino, D-Spring Valley, said he would hate to see the state send businesses a tax bill much higher than they anticipated at the end of the year.
Wednesday’s hearing was the first after the Legislature failed to hammer out some form of business tax break deal during its regularly scheduled veto session.
State Senate President John Cullerton, D-Chicago, started by introducing a tax break for just CME Group. But Republicans said they wanted to see a broader tax-relief policy, saying anything else is the state picking winners and losers in the business world.
There are two similar hearings scheduled Friday and Nov. 28 before the Legislature returns to Springfield for one day of session on Nov. 29.
“We’re here to break it down and find out what will pass,” state Rep. John Bradley, D-Marion, said.