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Taxpayer Relief Act of 1984 Would Help Sponsored by the Coalition for Political Honesty and Rep. Daniel Pierce, Chairman of the House Revenue Committee, the proposed legislation would reduce state utility tax on gas, electric and phone service, and repeal "loopholes" that primarily benefit multinational corporations. This in turn would make up for lost revenue from utility tax reductions. By Patrick Quinn Did you know that the Illinois General Assembly will consider a piece of legislation this year that would raise an additional estimated $11 million in revenue for Illinois' park districts? Did you know that this same legislation would save the average Illinois homeowner $50 or more a year? And did you know that voters will get a chance to express their opinion on this piece of legislation in more than 100 municipalities across the state at the March 20th primary?
EDITOR'S NOTE: This article expresses the views of the author and the Coalition for Political Honesty and does not necessarily express the views of Illinois Parks & Recreation magazine. The name of this legislation is the Taxpayer Relief Act of 1984, and it is sponsored by the Coalition for Political Honesty and Rep. Daniel Pierce, Chairman of the House Revenue Committee. There may not be a more important bill this year for those persons concerned about fiscal conditions of Illinois park districts. The Taxpayer Relief Act would reduce the state utility tax on gas, electric and phone bills from 5% to 2 1/2%. At the same time, it would repeal three costly and wasteful state income tax loopholes. RELIEF FROM UTILITY TAX OVERDUE Certainly, relief from the state's skyrocketing utility tax is long overdue. It is an unfair and regressive tax. Since it's a tax on necessities like heat, light and phone service, it hits hardest those families and businesses least able to pay. It is a hidden tax. It goes up, without legislative oversight, every time a utility company is granted a rate hike by the Illinois Commerce Commission. It is thus a runaway tax. Utility rates in Illinois doubled between 1978 and 1982, making the utility tax the state's fastest growing source of revenue. And with the full impact of the AT&T break-up yet to be felt, as well as record electric and gas rate hike cases still pending, these rates are sure to continue rising. With them, the burden of Illinois utility taxes — already the heaviest in the country — will get ever heavier. By cutting the state utility tax in half, the Taxpayer Relief Act will provide average homeowners in Illinois with tax savings of $50 or more a year. Senior citizens — who pay twice as large a share of their incomes in utility taxes as everyone else — would be among the principal beneficiaries of a tax cut. Breaking up the cozy relationship between the State treasury and utility rate hikes will reduce state revenues by more than $300 million a year. To pay for this tax relief, while maintaining state revenues at existing levels, the Taxpayer Relief Act proposes to repeal three costly and unproductive income tax loopholes. These loopholes cost not just the state, but local units of government — including park districts — tens of thousands of dollars a year. LOOPHOLES HURT PARK DISTRICTS Why do these loopholes affect park districts? Because park districts receive 5.3% of the money collected under the state's personal property replacement tax (PPRT). Most of these PPRT collections are generated by a 2.5% tax on corporate income. But since 1981, collections from this 2.5% tax have dropped by a full 33% (after adjusting for inflation). Part of the reason for the weakness in collections from this tax was the recession. We've had recessions before, but we've never seen anything like the sort of nosedive in taxes based on corporate income that has occurred over the past three years. The difference this time is the existence of two new, massive corporate tax loopholes: 1) state conformity to the federal Accelerated Cost Recovery System (ACRS), and 2) the state's failure to require that multinational corporations report their worldwide income. State conformity to the Accelerated Cost Recovery System (ACRS) ACRS represents a radical change in the way businesses calculate depreciation deductions for tax purposes ("Depreciation" refers to the ability of businesses to deduct from gross income an allowance for the gradual wearingout and obsolescence of their machinery and buildings. Under pre-ACRS law, businesses would write off the cost of acquiring a new machine or new building over a period of time roughly equal to the actual useful life of the machine or the building. For machines, this averaged out to about 10 years. For buildings, the range was anywhere from 20 to 60 years. ACRS, by comparison, lumps all machinery into a 5-year class, and all real estate into a 15-year class. As a result, businesses can claim deductions for the depreciation of their property far in excess of anything that might be justified by wear and tear or obsolescence. In fact, America's corporations will receive more than $50 billion worth of new depreciation deductions due to ACRS next year alone, according to Department of Treasury estimates. And more than 80% of this tax break bonanza will go to the largest 2000 firms in the country. Illinois Parks and Recreation 12 March/April 1984 "Since 5.3% of all Personal Property Replacement Tax collections go to park districts, the total revenue loss from these loopholes [for multinational corporations] to Illinois' park districts will exceed an estimated $11 million next year alone." The Taxpayer Relief Act is designed to prevent that loss of revenue. Worldwide vs. domestic apportionment Under current state law, Illinois requires that a multinational corporation and all of its subsidiaries in the same line of business report their combined income from operations occurring within the United States' boundaries. But what makes a multinational a multinational is the fact that such firms have operations both here and abroad. Because Illinois ignores this crucial fact, these multinationals have been granted the opportunity to transfer profits to their overseas subsidiaries by means of accounting gimmickry. Oil companies, for instance, can claim that their profits are due to production facilities overseas rather than marketing operations here in the United States — and there's virtually nothing that the Illinois tax auditors can do about it. There is only one way to avoid this sort of accounting sophistry — and that is to do away with the artificial distinction between the U.S. and foreign components of multinational firms currently enshrined in Illinois law. The only fair way to determine the share of income which arises from activity in Illinois is to use worldwide income as the starting point — and that's precisely what the Taxpayer Relief Act proposes to do. And that's not all To make matters even worse, on July 1 of this year the state will unveil a new investment tax credit. This credit will be a dollar for dollar offset against the PPRT tax bills of corporations. In this way, the state shifts the cost of yet another gold-plated corporate tax giveaway on to the backs of struggling local governments. We estimate that the combined impact of these loopholes will result in a shortfall of more than $210 million for all units of local government in 1985. Since 5.3% of all PPRT collections go to park districts, the total revenue loss from these loopholes to Illinois' park districts will exceed an estimated $11 million next year alone In the table below, we have provided revenue loss estimates for individual park districts. WOULD REPEAL OF LOOPHOLES HURT BUSINESS? Because the Taxpayer Relief Act would repeal these loopholes, those firms and individuals which currently benefit from them have lined up in opposition to this bill. These loopholes, they say, are needed to promote investments in Illinois; their repeal, they argue, would seriously damage Illinois' business climate. Yet a closer inspection of each of the loopholes reveals that these contentions are far off the mark. Two of these loopholes actually force Illinois taxpayers to subsidize corporate investments made out-of-state or overseas. The ACRS tax break, for instance, is granted whether the investment takes place in Texas or Illinois or any other state. And Illinois' failure to require multinationals to report their worldwide earnings allows foreign-based companies to avoid paying Illinois taxes as long as they keep their plants and jobs overseas. By comparison, the Taxpayer Relief Act would provide real benefits to Illinois businesses, particularly small and medium-sized businesses which produce and sell most of their goods in state. More than half of the utility tax relief that would be realized under the Taxpayer Relief Act would go directly to businesses, thereby reducing the cost of operations in Illinois.
The Taxpayer Relief Act reverses a shift in state tax burdens which has seen small businesses bear an ever-greater share. Yet it is these small or new firms which have generated anywhere from one-half to two-thirds of all new jobs in the American economy in recent years. Utility taxes, which must be paid whether a firm runs a loss or makes a profit, represent a real hardship for these enterprises — which typically are in the red during their start-up years. Finally, the threat that these loopholes pose to the fiscal well-being of local units of government cannot be ignored. Without a good education system, businesses will have to look elsewhere for competent workers. Without cities that work, production costs wil soar. And without a decent system of parks and recreation, the quality of life for their employees will suffer. By slashing local revenues, as these loopholes do, far greater damage is done to Illinois' relative attractiveness. Those lobbies which oppose the Taxpayer Relief Act because it is "anti-business" reveal just how short-sighted (Continued on p. 32)
ABOUT THE AUTHOR: Patrick Quinn, Chicago, is the director of the Coalition for Political Honesty which was responsible for promotion of the referendum to reduce the size of the Illinois House and also the legislative act creating the Citizens Utility Board. He is a member of the Cook County Board of Tax Appeals. Quinn is a graduate of Georgetown University with a degree in economics (1971) and Northwestern University School of Law (1980).
Illinois Parks and Recreation 13 March/April 1984 TAXPAYER RELIEF ACT (Cont. from p. 13) and self-serving are their notions of what's "pro-business." If businessmen and businesswomen in Illinois take a close look at their books, most of them will find that the Taxpayer Relief Act makes good sense — for their business and for the state. But the lobbies which oppose the Taxpayer Relief Act are strong and entrenched. That's why the Coalition for Political Honesty has worked to place Taxpayer Relief Act referendums on the ballots of more than 100 Illinois communities for the March 20th primary. These referendums are advisory only — they have no binding effect — but they do allow average citizens to speak out on issues that are important to them. And it is the voice of these citizens which is so often absent when tax policy is debated in Springfield. Between now and June 30 the state of Illinois will find out if the state utility tax express can be derailed. Illinois Parks and Recreation 32 March/April 1984 |
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