A cinder-block truck stop on the south side of Interstate 74 at Pittsboro, Ind., used to serve outstanding biscuits and gravy, and I made a point of stopping there every time I drove through our neighboring state – where I have friends living and working.
I’ve long had a fondness for Indiana – home of Socialist Eugene Debs (who got more than 900,000 votes for U.S. President in 1912), Hoagy Carmichael (the jazz musician, actor and composer who wrote “Stardust”), and Larry Bird (the legendary Indiana State and Celtics basketball player).
But that changed on January 18, when “Develop Indy and the Indianapolis Bond Bank” ran a full-page, full-color advertisement in the Journal Star declaring commercial war on Illinois.
Sure, it was worded with the smile-while-I-knife-you tone of some lobbyists or gang-bangers – “A business invitation from the city of Indianapolis” – but the message was clear: “large, new state tax increases” make Indiana attractive for corporations.
Of course, states – and individual communities – constantly compete for commerce. Also, the argument is as old as the misleading comparison of financial factors such as workers compensation rules or social factors like the level of training or work ethic a place claims.
But politicians are exploiting the border war to make points against one way to help Illinois pay its bills while it cuts waste, protect services that businesses and citizens expect, and slow its slide, caused by everything from less revenues coming from fewer employed people to years of short-sighted and bipartisan leadership cranks including authoritarian Speaker Mike Madigan, impeached Gov. Rod Blagojevich and convicted Gov. George Ryan. New GOP Sen. Mark Kirk of Illinois has dubbed Illinois “a high tax, high regulation state.”
And politically minded business is taking advantage, too.
Jim Liautaud, owner of the Jimmy John’s sandwich shops based in Champaign, says his family’s moving to Florida and his company might go there, too. But there’s more to his threat than refusing to pay a fair share of operating in Illinois.
“Liautaud is a doctrinaire conservative who has donated more than $300,000 to Republican candidates in Illinois since 2007 and come under fire from labor activists for poor working conditions at some franchises,” says Adam Doster of Progress Illinois. “He’s free to leave for whatever reason he chooses, of course. But let’s not pretend that this case represents the thinking of businesses more broadly.”
The excuse that Indianapolis and corporate hand-wringers and handmaidens like Kirk use is the tax-increase package the legislature passed and Gov. Quinn signed, which raised the individual income tax from 3% to 5% and the corporate income tax from 7.3% to 9.5%. According to the conservative Tax Foundation, someone earning $24,000 a year in neighboring states would pay less in Indiana (3.4%), but more in Iowa (6.8%), Kentucky (6%), Minnesota (7.85%), Missouri (6%) and Wisconsin (6.75%).
For corporations, the comparison to Midwest states is split, with corporations reporting profits of $100,000 in a year paying 10% in Iowa, 6% in Kentucky, 9.8% in Minnesota, 6.25% in Missouri, and 7.9% in Wisconsin, the Tax Foundation shows.
Question: If corporate income tax was the main driving force, why haven’t companies relocated to Illinois from Iowa, Minnesota and other places with higher rates, such as Pennsylvania (9.99%) and Washington, D.C. (9.975%)?
Answer(s): Because corporations locate based on many reasons, and because many pay no taxes anyway.
Corporate or individual taxpayers have exemptions and deductions (and pay other local and state taxes and fees, too, of course).
“It becomes very hard to compare just based on rates if, when you get to the bottom line, the rate doesn’t matter because you’re not paying any tax due to some massive package of tax credits,” concedes Todd Berry, director of Wisconsin Taxpayers Alliance.
Two-thirds of corporations operating in the United States didn’t pay any taxes from 1998 to 2005, according to a report by the General Accounting Office during the second Bush administration, in 2008. Maybe that was because two-thirds made no profit, but the economy was better for them then. It’s more likely they used tax shelters and other devices to avoid sharing the costs of society.
General Electric and ExxonMobil, for instance, paid no taxes for 2009, according to business magazine Forbes last April, despite GE recording $10.3 billion in pretax income and ExxonMobil reporting a huge $45.2 billion profit.
Last summer, U.S. Sen. Bernie Sanders (I-Vt.) included ExxonMobil’s corporate income tax report in the Congressional Record and remarked, “Last year, ExxonMobil, the most profitable corporation in the history of the world, reported to the SEC [Securities and Exchange Commission] that not only did it avoid paying any federal income taxes, it actually received a $156 million refund from the IRS.”
So, Indiana: Keep Peyton Manning, John Mellencamp and your lake-effect snow.
Sensible or sneaky, corporations here still have something you don’t: Illinois and Illinoisans.
Contact Bill at bill.knight@hotmail.com