More on Illinois’ income tax increase –thinking about globalization

by Linda Beale

More on Illinois’ income tax increase –thinking about globalization
crossposted with Ataxingmatter

As states continue to face difficult times and vulnerable residents unemployed by the Great Recession come to the end of their ropes with the last of their unemployment support checks (those unemployed for 99 weeks don’t get any more help under the latest extension), the rhetoric continues to escalate.

As I noted in my last post on Illinois’ decision to increase its personal and corporate income tax rates (See Illinois Senate Bill 2505, signed into law by Gov. Quinn on Jan. 13), tax increases–especially those that require people and companies of wealth and power to kick in a fairer share of the tax burden–may well make sense even as the country deals with the continuing fallout of the banksters’s binge of casino speculation.  Governor Quinn noted when signing the Illinois legislation that the tax increase was need to stave off fiscal insolvency.   The 5% individual income tax rate applies until January 2015, at which time the rate reverts to 3.75% for ten years and then 3.25% after 2025.

The right wing’s preferred solution– to see the states fire public employees or at the least reneg on their earlier commitments to fund pensions (which generally permitted them to hire highly skilled employees at lower wages than would otherwise have been possible)– would only make grave matters much worse. There are important programs to be funded in the states, and ultimately a higher tax burden that is allocated to those who can best pay it may be the best solution.  Management efficiencies need to be undertaken, and wasteful spending and corruption stifled, but in many cases those savings are relatively small.  The “no new taxes” mantra that has dominated public discourse under the Chicago School thinking has kept states from dealing forthrightly with these issues for decades.

Wisconsin’s new governor, right-winger Scott Walker, is a perfect illustration of the zany rhetoric and gamesmanship being played about tax matters all across this country.  He has said he would spurn federal stimulus money and ditch a planned high-speed rail line between Madison and Milwaulkee.  See James warren, Wisconsin Sounds Off, but Misses the Point, New York Times, Jan 15, 2011.  High speed rail is the wave of the future, and the US needs to catch that wave soon or be left behind.   Walker’s rhetoric here seems designed to please wealth and power (and the kooks in the “tea party” who are foolish enough to think that federal monies for infrastructure is a waste of “their” tax money), but move the state in the opposite direction from where it needs to go.  Walker has also gone on the air in a campaign intended to take advantage of corporate dislike of the Illinois tax hike, inviting corporations to “escape to Wisconsin.”

James Warren’s piece in the Friday New York Times challenges that sentiment.  Seems that the Illinois personal rate (5%) is probably less than taxation under the progressive scale of 4.6% to 7.75% in Wisconsin.  And if Caterpillar or some other big corporation were to move to Wisconsin, it would face a higher rate of 7.9% compared to the 7% rate passed for Illinois.    So Walker’s rhetoric is just that–trying to make hay out of the mere fact that Illinois increased its tax rates.  As Warren points out, politicians need to start thinking about what is good for the region and “not just poach others’ enterprises”.  

We need to think strategically, as globalization has made it much easier for companies to move to greener pastures–not just other states, but out of the states.  Congress could help that by eliminating the provision in the Code that permits companies to move active business assets abroad without paying tax on the built-in gain.  In fact, Congress ought really to consider revamping the entire reorganization provisions in the Code.  We have seen that too big to fail banks are costly for us.  Rather than aiding consolidation of companies through nonrecognition provisions, what if we made reorganizations more difficult and costly?  Combine that with a renewed anti-trust vigor, and encourage smaller businesses to stay in this country.  Localvore could take on a new meaning.