State's tax system needs to be overhauled

The state of Illinois is hemorrhaging money. The final outcome will depend on how quickly the hemorrhaging can be staunched. Just as blood is the life force of humans, money is the life force of political institutions. Sad to say, our political leaders have been poor stewards of our state's economic resources.

One area where legislators have been particularly remiss is in granting tax giveaways to large corporations. One of the most egregious tax giveaways is the tax break given to Illinois oil and gas companies which allows them to shelter income earned from off-shore production on the U.S. continental shelf. This shelter does not benefit Illinois because it is ineffective in creating jobs or stimulating economic growth.

In 1993, then Gov. Jim Edgar and the legislature agreed to restrict the corporate income tax for profits stemming from in-state sales and eliminated property value and payroll size from the tax formulae (This was done despite the fact that revenue experts said property and payroll more accurately represent a corporation's activities in the state than sales alone).

Tax revenue officials estimated at the time that the new formula would amount to a corporate tax break of about $60 million a year. The bulk of the saving went to Illinois' largest corporations. The Illinois Manufacturers Association sold the reduced tax liability as an economic development incentive that would create as many as 285,000 jobs. Instead, the sector declined to fewer than 600,000 jobs, down from more than 800,000 when the legislation took effect.

To cover their administrative costs, retailers are allowed to keep 1.75 percent of the sales tax revenue they collect from consumers on behalf of the state. According to Good Jobs First (GJF), a public interest group that studies economic development subsidies, Illinois has lost more than $1.1 billion in sales taxes since 2000.

Opponents of the refund call the concession the "Walmart loophole" because the retailer is a major beneficiary. In fiscal 2011, Walmart reported that it collected $552.6 million in sales tax in Illinois and was therefore able to pocket more than $9 million in additional profits.

In 2004, the federal government created a tax break known as the "domestic production deduction." Because Illinois and most states base their tax codes on the federal tax system, the deduction carried over. States are not required to allow the tax break, and 22 states have passed legislation opting out of it, according to the Center on Budget and Policy Priorities. According to the center, Illinois has not opted out, and together with the sales tax refund loses more revenue than other states: a projected $103 million last year alone.

The legislature and the governor did eliminate one tax break recently. In December, they agreed that the state should not conform to a federal rule that allows business to accelerate their deductions for capital investments in 2012. However, the change will not boost tax revenues. Instead the new revenue will pay for tax breaks given to Sears Holding Corp. and CME Group who threatened to leave the state.

What all of these concessions mean is less money for education, health care, and public safety. It is clearly time to overhaul the state's tax system, including corporate tax liability before most of the tax increase expires after 2014.

Al Popowits is a resident of River Forest.