Compromise on corporate tax

APPARENTLY legislators were the last to learn that clout is out and compromise is in. With the passing of Chicago's Golden Age of Clout, Illinois politics is entering a new age of artful compromise. The old age went out when the much-celebrated "road show" marriage of the Republican governor and the Democratic mayor of Chicago failed to materialize. The new age came in on Monday, August 6, 1979, when the General Assembly agreed in special session to the replacement for the corporate personal property tax. The plan which finally was adopted was neither Republican nor Democratic; it was the brainchild of Douglas L. Whitley, executive vice president of the Taxpayers' Federation of Illinois. It's not that Whitley came up with a brilliant plan. It's just that Republicans and Democrats were at such odds that only an outsider's compromise could succeed.

Replacing the corporate personal property tax was an impossible job because the 1970 Constitution set a deadline, ordering legislators to repeal it and replace it by January 1, 1979. The replacement question stymied the Constitutional Convention, so delegates passed the problem to the General Assembly. (Voters had just repealed the individual personal property tax and the convention could hardly avoid saying something about repealing the business counterpart.)

The major obstacle to replacement was business. Unsure of what it stood to lose, business had balked at what appeared to be half-baked suggestions. But as the 1979 deadhne drew near, legislators -- as predicted -- tried to outmanuever the mandate. They proposed a constitutional amendment to remove the deadline, but voters rejected it. Still, the General Assembly gambled that the courts would not try to enforce the constitutional order. Then, early this year, the Illinois Supreme Court declared the tax dead. That did it.

Now the pressure came from schools and others who depended on the corporate personal property tax base for a lot of their local income and not a little of their borrowing power. They knew exactly what they had to lose: schools could go bankrupt.

The press, already arguing that any solution was better than none at all, pounced on Whitley's plan when it was announced two weeks before the special session. The situation cried out for a compromise, editorials said. Whitley's was made to order.

Gov. James R. Thompson had already announced plans to veto the bill and call a special session to override or

accept the veto. So the session had ended in a scoreless tie with Democrats and Republicans agreeing only that the replacement should be a surtax on income tax. (They didn't argue over minor details like the 1.5 percent increase on the tax on partnerships or the .8 percent increase on the tax on utilities' invested stocks.)

Despite the special session set-up, neither the Democrats nor Republicans did the obvious. The compromise, when it came, was Whitley's. Lobbies like the Taxpayers Federation have been writing their own legislation for years with the process as controversial as the "agreed" bills themselves. Yet this was the first time in years that politicians gave lobbyists the credit.

Even then, with the press begging for acceptance of Whitley's plan, legislators and the governor seemed reluctant to get down to old-fashioned bargaining. They came to terms only after the majority Democrats allowed Thompson to neatly appropriate Whitley's idea as his own. Thompson merely applied an amendatory veto, adjusting H.B. 2569 to fit the compromise.

That answered the question of what legislators would do about replacing the corporate tax. But it posed others. How palatable is the compromise? What pressures will business bring to bear now? With the 1980 elections, so crucial to reapportionment, only a year away, how much political mileage is left in the corporate tax car? How soon will Democrats or Republicans be tempted to tinker with the surtax? Business will say it can't afford it. Schools will say they can't do without it. Legislators, still cloutless, may be faced with more artful compromise.

Is this only a temporary reprieve for the General Assembly? The clue lies in the compromise, which centers on reducing the surtax rate from 6.85 percent to 6.50 percent on January 1, 1981. Whitley based his compromise on the theory that increases in income tax revenue as a result of growth in the economy, will offset the drop in the rate by January, 1981. Whitley's plan makes sense, but politically it only tightens the battle lines.

But Republicans maintained there is no such thing as a free lunch. They said a higher surtax would only drive business and jobs out of Illinois. "The corporations don't pay taxes, we all know that. They pass the costs on to the consumers," said Rep. Philip W. Collins (R., Chicago), arguing for the amendatory veto. Republicans said schools will not realize less than they do now, even under the lower surtax.

The bottom line, as always, is money. The increase in corporate income tax revenue has averaged 12 percent a year over the last decade, well ahead of the average 7 percent increase in inflation. That would seem to reinforce Whitley's theory that increases in income tax revenue will offset decreases in surtax revenue. But the country is officially ina recession now. Whether increases offset decreases won't be clear for three years. Collections in 1980 will reflect the higher 6.85 percent surtax. Those in 1981 will show half the higher rate and half the lower rate of 6.50. Those in 1982 will reflect the lower rate. How will the increases-v.-decreases figures compare in 1982?

Business may only grumble about the higher 6.85 percent rate until it drops in 1981, but it's sure to badger legislators for minor concessions in the meantime. Business will ask to reclassify property taxed under the new system, or to allow deductions taken under the old. Heading the list will be corporations who paid no property taxes but must now pay the higher income taxes.

Whatever the pressure, the Democrats are already split on the question of tinkering with the basic surtax. McPike served notice in the House that he'll begin this January to push to retain the higher 6.85 percent rate. Speaking for Democrats in the Senate, Sen. Terry Bruce (D., Olney) said they are committed through 1981.

The really debatable issue did surface again at the special session amid a fog of rhetoric and muffled warnings. Is the surtax a replacement of an old tax or the creation of a new tax? The answer won't be clear until all the figures are in and probably until after a court decision.

The Illinois Supreme Court, whose ruling forced lawmakers to the surtax, will have the last word. The high court has agreed to hear in September the challenge to the new tax.

Diane Ross is Illinois Issues' new legislative correspondent. She is a graduate of the Public A/fairs Reporting Program at Sangamon Stale University and was an intern during the last legislative session with The State Journal-Register. She replaces Gary Adkins, who has left our staff after two years of covering the State House. He is now off in the hills of Virginia -- in his log cabin --putting into fiction what he has observed in and out of the State House.