Rauner choosy about what corporate loopholes to close

Written By By Mark Brown Posted: 08/28/2014, 12:45am

To show that a guy with nine homes can be a man of the people and not just another corporate frontman, Republican Bruce Rauner last month offered up his ideas for closing special interest tax loopholes.

Topping Rauner’s list, which was indeed somewhat unusual for a GOP candidate for governor, were two tax loopholes Gov. Pat Quinn had previously advocated closing.

Noticeably missing from Rauner’s proposal, however, was a loophole Quinn and other Democrats have argued would sensibly save the state $100 million a year — as much money as the other two combined.

As it happens, that’s a loophole from which Rauner personally benefits.

It’s called the domestic production activities deduction, and it’s right there on Line 35 of your federal 1040 form, not that I’d ever had any reason to notice until now.

Over a three-year period, Rauner claimed more than $671,000 in deductions using this loophole, which in addition to the federal tax savings also reduced his state income tax bill by more than $29,000.

I realize that’s a drop in the bucket for somebody who made $53 million in 2012 alone, but from such drops are born big budget deficits.

Seventy percent of the $100 million in lost annual revenue to Illinois from this one loophole comes out of corporate income taxes and the other 30 percent from individuals such as Rauner as a pass through from partnerships and limited liability corporations in which they have a financial interest.

The federal deduction is designed to encourage manufacturers to keep their production activities in the U.S. Its effectiveness in that regard is questionable enough that even Republicans in Congress have suggested repealing it as part of an overhaul of the federal tax system.

Since its inception in 2004, some 22 states have “de-coupled” from this provision in federal law in recognition of the fact it doesn’t even necessarily benefit production activities conducted in their own states.

By de-coupling, a state does not allow the deduction for state income tax purposes, although it remains in effect for federal income taxes.

But several attempts to follow suit in Illinois have been beaten back by the business community, which argues our in-state manufacturers would be placed at a competitive disadvantage with companies in states that continue to allow the deduction.

I’ve been around long enough to realize one man’s tax loophole is another man’s legitimate deduction (hands off my home mortgage interest write-off.)

But I think that’s the point.

We can never seem to close any of these loopholes because whoever’s ox is getting gored wants to protect them.

And Rauner is somebody who sees the world from the point of view of those who directly benefit from this loophole.

“Decoupling from the domestic production activities deduction would negatively impact Illinois manufacturers at a time when we already suffer from one of the most hostile business climates in the nation,” Rauner spokesman Mike Schrimpf wrote in response to my inquiry. “If we are to become competitive again, we need comprehensive, pro-growth tax reform that makes Illinois attractive to job creators.”

Hey, I’d gladly forego corporate income taxes altogether if we could just get the wealthy people to pay their fair share and if it would actually create jobs.

I also wish I could tell you specifically which of Rauner’s many business interests qualified him for the domestic production activities loophole.

But Rauner has only disclosed the first two pages of his tax returns, which does not show that information. His campaign chose to ignore my questions that might have shed some light on the subject.

“This campaign clearly isn’t about Bruce’s personal finances — he’s contributed substantial personal resources to the race, won’t take a salary or pension as governor and will put all his assets in a blind trust,” Schrimpf said.

I have long maintained all candidates for major public office—and officeholders—should be required to make public their income tax returns, their complete income tax returns, and most do so voluntarily. It really ought to be part of their mandatory annual ethics disclosures.

I can certainly understand how Rauner would prefer to avoid making this campaign about his personal finances, although I’m astounded he keeps offering up his decision to forego a salary and pension as if it were a qualification for the job rather than a reasonable admission he doesn’t need the money.

As for his pledge to put his assets in a blind trust, keep in mind that much depends on how that blind trust would be structured. In the past, many public officials have used blind trusts as a vehicle to hide their finances from public view, not as a guard against conflicts of interest.

Somebody who wants to keep his tax returns secret doesn’t inspire confidence he would establish a legitimate blind trust.

As it now stands, Rauner seem more interested in putting blinders on the voter of Illinois.

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