SPRINGFIELD — A day after Republicans slammed Gov. Pat Quinn for the state’s jobs climate, House Speaker Michael Madigan gift-wrapped a $1.5 billion election-year bouquet to Illinois businesses by offering to halve corporate income tax rates so they can “grow their work forces with good-paying jobs.”
The speaker’s move effectively one-ups Quinn, who offered virtually no relief to Illinois employers in his Wednesday State of the State Speech, by unilaterally acting to undo part of the controversial temporary hike in state corporate and individual income taxes that the governor and Illinois Democrats enacted in 2011.
Quinn has dodged repeated questions about whether he favors letting the 7-percent corporate income tax increase roll back to 5.25 percent or extending it beyond next January. He also has been silent about whether he backs letting the 5-percent income tax rate paid by individuals and some small- and mid-size businesses drop to 3.75 percent then.
Under House Bill 4479, which would retroactively take effect Jan. 1, the speaker proposes cutting the corporate income tax from 7 percent to 3.5 percent in a move that could immediately yield between $500 and $700 million in savings for businesses. In the 12-month period beginning July 1, the amount could rise to $1.5 billion.
“For many years, we have listened to employers about the best manner to improve the business climate. We have tackled worker compensation reform, reduced the estate tax and created an independent tax tribunal. Cutting the corporate income tax rate is another step I am asking the Legislature to consider,” Madigan said in a prepared statement.
“I am hopeful this legislation will encourage CEOs to grow their work forces with good paying jobs,” he said.
The Southwest Side Democrat’s proposal comes one day after the lineup of Republican candidates for governor slammed Quinn for presiding over what they described as stagnant job growth in a state that, as of December, suffered from the third worst unemployment rate in the country.
In his State of the State speech, Quinn maintained Illinois added 280,000 jobs since 2010 and that, since May, the state has been the Midwest’s leader in job creation. He also pointed out that the state’s 8.6-percent unemployment rate is the lowest it has been in five years.
But the governor, who was not consulted about Madigan’s proposal before its rollout Thursday, offered no sign that he was prepared to embrace the speaker’s idea during an appearance at Southwest Side preschool, where the governor was promoting an early childhood education program he floated Wednesday.
“I haven’t talked to the speaker about anything on that subject,” Quinn told reporters. “There’ll be a lot of negotiations. There always are. And people are free to bring up anything they want. What’s finally adopted, I think, will be, hopefully, in the very best interests of these children. Children first.”
The speaker’s proposal appears steeped deeply in giving Democrats, particularly incumbents within his own chamber, political cover against Republicans whose 2014 campaign narrative is focused largely on blaming Quinn and his party for failing to promote job creation and stop the state from slipping into what two GOP candidates for governor have called an economic “death spiral.”
The speaker’s plan also could serve as a counter to widespread opposition — both from Republicans and from within the business community — to a minimum-wage hike being pushed this spring by Quinn and other Democrats. It would give Illinois companies the promise of financial wiggle room to weather a hike in what they offer their lowest-paid workers, who now get $8.25 per hour.
The corporate income tax generates a respectable financial pot for state government — $2.9 billion in 2012. But a wide swathe of Illinois companies, particularly small and mid-sized ones, are organized in a way that permits them to pay the same lower, income-tax rate that individuals do.
And indications exist that some of the state’s largest employers, who are incorporated in a way such that they would have to pay higher corporate income taxes, don’t because of an array of state and federal credits that lower their income-tax hit to the state. A 2011 Department of Revenue study showed that only 33 percent of such C corporations paid anything to Springfield.
“The vast majority of small business owners are pass-through entities and pay the personal income tax,” said Kim Clarke Maisch, state director for the National Federation of Independent Business. “When you look at cutting taxes, just focusing on the corporate income tax side really leaves small business owners without any kind of relief from the tax burden.
“From that perspective, while we understand why the speaker wants to cut corporate taxes, we hope he’ll recognize small and medium businesses need tax relief, as well,” she said.
Private equity investor Bruce Rauner, one of four Republicans vying to replace Quinn, has bedeviled Madigan on the campaign trail and Thursday ridiculed his plan as proof that the temporary income tax hike the governor and other Democrats enacted in 2011 has been a damaging and undeniable drag on Illinois’ economy.
“This is more proof that the Pat Quinn tax hikes were a horrible mistake, but this is only a baby step toward correcting the failures of the last four years,” Rauner said in a prepared statement. “We need to start by getting rid of the entire Quinn tax hike and work to lower both corporate and personal taxes, putting more money back into the pockets of all Illinoisans.”
Likewise, state Sen. Bill Brady, R-Bloomington, another GOP candidate for governor, said Madigan’s effort doesn’t go far enough to help small businesses and middle-class voters, who pay the lower individual income-tax rate.
“I am glad to hear the speaker talking about a tax cut rather than a tax increase,” Brady said. “I believe his effort to create a better jobs climate in Illinois would be even better served if he included a cut in the personal income tax rate, which would benefit small businesses as well as Illinois families.”
Treasurer Dan Rutherford, another Republican running for governor, was the only member of the GOP gubernatorial field to step forward with praise for the speaker’s initiative.
“Putting Illinoisans back to work must be a top priority, as is improving our business climate. Reducing the corporate state income tax to 3.5 percent sends a strong message to employers that Illinois is serious about becoming a better home for businesses,” he said.
At the Capitol, Republican reaction was mixed between those supporting the tax cut and others expressing wariness about Madigan’s motives, suggesting it might merely be a pathway toward scrapping Illinois’ flat income tax with a graduated tax that would hit the wealthy the hardest or taking away other corporate tax breaks.
“Welcome to the discussion,” Senate Minority Leader Christine Radogno, R-Lemont, said of Madigan’s proposal. “We unanimously opposed the Democrats’ 67-percent tax hike that slammed our economy and hurt working families. I’m glad there is now a recognition that their tax increase is driving jobs out of Illinois.
“But small business and individuals need tax relief as well,” she continued. “We need to make further progress on reducing Illinois’ artificially high workers compensation rates and tackle the burdensome regulatory environment. We hope the Speaker will work with us on those comprehensive solutions and not just offer up a tax to replace a tax.”
House Minority Leader Jim Durkin, R-Western Springs, said Madigan’s plan is something his caucus has advocated for years but questioned whether it was some kind of legislative Trojan Horse designed to allow other business takeaways.
“On the surface, we are thrilled that the majority party seems to finally be getting the message that something needs to be done, but [we] remain cautious about how they intended to make up the lost revenue,” Durkin said.
“Is this a bait-and-switch to move to a graduated tax, which House Republicans oppose? Or do they intend to wipe away research and development or other tax credits. What about the individual tax rate paid for by 80 percent of our small business owners? We are going to need answers to these questions,” Durkin said.
Madigan’s plan would leave the state 2.5 percent personal property replacement tax intact, making the effective state tax rate on businesses at 6 percent.
The speaker said he intends to have his proposal heard by two House panels — the Revenue & Finance and State Government Administration committees.
State Rep. Jack Franks, D-Marengo, chairman of the State Government Administration committee, praised the speaker’s legislation and said it goes far beyond the “pep talk” Quinn offered in his State of the State toward making Illinois a more business-friendly state.
“House Bill 4479, introduced today, is exactly the type of targeted and specific action that will produce verifiable gains for hard-working families across Illinois,” Franks said in a prepared statement. “Reducing the tax burden on employers will free up capital for small-business owners to reinvest in their enterprises and hire more workers, while sending a signal to businesses across the country that Illinois is making serious efforts to restore our competitiveness and is once again open for business.”
In an unusual twist, Madigan, chairman of the state Democratic Party, invoked the name of a Republican governor in North Carolina, Pat McCrory, to make the case for lowering the corporate income tax rate. Madigan said McCrory characterized North Carolina’s corporate income tax as “economically destructive.”
Madigan quoted McCrory as justifying his state’s cut in that rate from 6.9 percent to 6 percent this year and to 5 percent in 2015 as “critical to putting residents back to work.”
Madigan said the move would even Illinois rates or make them lower than surrounding states. Madigan cited a comparative analysis by the Federation of Tax Administrators that showed total business taxes in Kentucky stand at 6 percent; Indiana 7.5 percent; Iowa, 12.0 percent; Missouri, 6.25 percent and Wisconsin 7.90 percent.