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Corporate tax-transparency plan a step toward progressive tax in Illinois?

SPRINGFIELD – If you’re looking for evidence that Illinois is hostile to business, critics would ask you to consider Senate Bill 282, an effort to force the state’s publicly traded corporations to publish their income tax information.

Supporters say disclosure would help lawmakers and the public evaluate the state’s tax code and its handling of tax breaks and incentives for business.

But critics say the bill presumes corporate wrongdoing and is an example of Illinois’ anti-business climate. One charged that it’s a tax grab dressed up as government reform.

“Taxpayers should not have to defend their tax returns in the court of public opinion, against subjective accusations of what constitutes their ‘fair share,’”  Illinois Chamber of Commerce president Doug Whitley said in a statement e-mailed to Illinois Watchdog. “Revealing confidential tax information can result in purposefully misleading accusations by persons attempting to use the information for political gain or in inaccurate statements or interpretations by those who don’t understand the complexities of corporate tax laws.”

Senate President John Cullerton and Rep. Barbara Flynn Currie, both Democrats, support the proposal, as do a variety of citizen groups, including the Chicago-based Lakeview Action Coalition.

But Steve Stanek, a research fellow at The Heartland Institute and an expert on Illinois tax matters, pointed to a statement on the Lakeview Action Coalition’s website as evidence that the bill is less about transparency and more about moving the state to a progressive tax structure. The site invites people to attend Tuesday’s news conference in Springfield to announce support for the bill and adds: “We need a fair and progressive tax code in Illinois, and corporate tax transparency is the first step!”

That’s a red flag, Stanek said.

“I think it’s legitimate to ask, ‘Why are two-thirds of these public companies not paying taxes?’ OK. You can ask the question and you should be able to get an answer. If you want to argue that all corporations should be paying some tax, OK you can make that argument,” he said.

“But don’t tell me you’re doing this for transparency to benefit Illinois citizens. You’re doing this because you want to squeeze a lot of money out of companies. You want a progressive tax code. I think progressive tax codes are often very damaging because there again you’re picking winners and losers.”

In a progressive tax system, people who earn more money pay a higher percentage in taxes than those who earn less. Illinois has a flat tax system in which everyone pays the same tax, regardless of income.

According to the state Department of Revenue, about two-thirds of companies doing business in Illinois pay no corporate income tax.

Cullerton, who said he does not consider the proposal “business unfriendly,” noted that Illinois’ temporary income tax hike expires on Jan. 1, 2015. If Senate Bill 282 becomes law, corporations will be opening their books to the state just in time for the expiration – and just as the next governor will be on the hunt for new money to work with.

“This information will come out about that time, and it will be very helpful for the legislature to decide how they want to deal with any changes to the tax code,” Cullerton said.

“We are just saying that you should disclose information about your taxes. For publicly traded companies, they already disclose a lot of information to their shareholders. Why not to us here in the state of Illinois? The legislators that are going to be making these decisions about our taxes, we have to have this information.”

Currie said government should be as transparent and accountable as possible so lawmakers can make the best possible policy decisions. That transparency extends to corporations benefitting from government, she said.

“We don’t know whether those 66 percent of corporations that pay no income tax in fact don’t have any profits. We don’t know whether they in fact may be among the most profitable corporations,” she said. “If we were to find out that there are some very profitable corporations operating in the state of Illinois, we might want to say that maybe they should pay a little more.”

Under the proposal, corporations would have to reveal a variety of income-tax information to the public, including the following:

The corporation’s taxable and base income.

The corporation’s apportionment factor and total business income apportioned to the state.

Net operating loss deduction.

Total non-business income and the amount of non-business income allocated to the state.

Net income.

Income tax liability before the application of any tax credits.

Itemized list of tax credits that the company claims and the amount of each credit.

Name of any corporation that owns more than 50 percent of the company’s stock.

The information would be supplied to the Illinois Secretary of State, which, in turn, would post it online for the public. There would be a two-year lag between the disclosure and when the information would appear online.

Stanek noted that there are many reasons why corporations don’t pay income tax. They may have expenses or investments to deduct or they may have been given tax credits for certain things. The problem in Illinois, he said, is that some politically connected companies are able to obtain incentives that other companies aren’t privy to.

“If we have a tax code that all businesses can read and use equally, that to me is fair. But when we have legislatures and governors handing hundreds of millions of dollars to politically favored corporations soon after a huge tax increase, that to me is unfair. That’s what those people ought to be complaining about,” Stanek said.

Either way, he noted, a progressive tax system – if that is what is afoot – is not the way to go because it ends up being a “favor factory” in which lobbyists try to obtain tax favors for their clients.

“A progressive tax code is an invitation to more political corruption in what is arguably the most politically corrupt state in the nation,” Stanek said. “If you have a flat tax, those lobbyists can’t try to get favors. They can go begging like Sears and Motorola did, but they can’t embed it in the tax code.”

The Senate could vote on the proposal as early as Wednesday. It then would go to the House for consideration.

Contact Jayette Bolinski at jayette.bolinski@franklincenterhq.org.

www.foxillinois.com/news/illinois/Corporate-tax-transparency-plan-a-step-toward-progressive-tax-in-Illinois-181167111.html

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