While state lawmakers debate tax breaks to keep big firms in Illinois, some small business owners feel like they’re taking it on the chin.
By Andrew Thomason
SPRINGFIELD – Mark Bohart opened Bo’s Hardware in 1987.
“I built it from scratch,” Bohart said.
Despite an income tax hike in January and the proliferation of franchised hardware stores in the area, Bohart said his Alton business is still holding up. But asked about his thoughts on a plan to give CME Group, and Sears Holding Corp. millions of dollars in annual tax breaks to stay in Illinois and he gets angry.
CME Group is the parent company of the Chicago Mercantile Exchange and the Chicago Board of Trade, both of which make money by trading in the financial markets.
“The state government has absolutely no reason to be giving any tax money away. I just don’t think it’s right that they give corporations tax breaks and other tax incentives,” Bohart said.
For Bohart, it’s a matter of survival. Just two miles from Bohart’s shop there’s a Sears department store that he competes with.
Legislators are working to give CME and Sears tax breaks to keep the companies’ in the state. Both companies have said other states are offering them incentives to move, which would be bruising to state government’s bottom line.
CME’s $108 million in income taxes alone accounted for 6 percent of the state’s corporate income tax last year. Without $85 million in proposed yearly tax breaks, CME will pay an estimated $158 million in income taxes this year.
Sears would get tax breaks of $15 million for the next decade. Sears would also be allowed to continue getting a break on its local property taxes for fifteen years. The company has been paying reduced property taxes for about 20 years.
Sears would be required to keep a minimum of 4,250 employees in the state at its headquarters in Hoffman Estates under the plan. But that would allow the company to downsize its current workforce of 6,100 by 1,850 and still get the benefits of lower taxes.
Not everyone in the Legislature is on board with the tax breaks.
“When I think about the other businesses we’ve given tax breaks to, what do we get as taxpayers in return? Another threat? When is enough, enough?” state Rep. Mary Flowers, D-Chicago, asked.
CME Chairman Terry Duffy said at a committee hearing Tuesday that his company isn’t seeking a handout from the state and isn’t threatening anyone.
“I would not be going through all this effort if we did not have a commitment to stay here,” he said. “I simply would have gone to another state, accepted very lucrative proposals and moved our firm.”
The cost of the measure has increased to more than $500 million annually by tacking on research and development tax breaks for companies and tripling the earned income tax credit in hopes of getting more legislators’ support. The earned income tax credit is a tax break for low-income and working class families.
To pay for all of this lawmakers are looking at decoupling the state from a federal tax code that allows businesses to get deductions on capital investments all at once instead of over a series of years.
“The framework for a good bill is out there, it just needs to be rebalanced so you’re not taking too much away from certain employers in order to benefit others,” Todd Maisch, vice president of government relations for the Illinois Chamber of Commerce, the state’s largest business association.
That move, however, would only generate $570 million in the first year and $354 million in the second year before disappearing.
At the same time, the second year cost of the tax incentives to CME and Sears, tripling the earned-income tax credit for families, and offering research and development tax breaks for companies around the state outlined in the plan would go up to $700 million.
David Vaught, Gov. Pat Quinn’s budget director, said economic growth in the state created by package would cover costs in the future during a committee hearing Tuesday.
If there isn’t a corresponding economic growth, the burden of covering the costs of the program will fall to the taxpayers of the state, including Bohart and his business.
“I resent that, I resent that a lot,” he said.
There are other businesses that could use the money from decoupling more than CME and Sears, some argue. The state owes between $4 billion and $5 billion in overdue bills to state vendors, schools and small businesses that the state contracts will.
“They employ people (and) we are doing nothing here by way of paying any back bills,” state Rep. David Harris, R-Arlington Heights, said.
Advocates of paying off the state’s old bills say doing so would allow those owed to avoid furloughs, layoffs or even closing, thus keeping tax revenue from those workers and businesses flowing into state coffers.