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Illinois Governor Responds to Tax Foundation Study

3 min readBy: Brian Phillips, William Ahern

In yesterday’s article on Gov. Blagojevich’s new taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. proposal, Crain’s Chicago Business asked the Governor Blagojevich’s office to respond to a recent Tax Foundation study.

Sadly, representatives of the governor’s office chose not to defend their own tax proposal, maybe because it is indefensible. Instead, a spokesman lobbed personal attacks at our organization with false suggestions of improper motives.

The governor’s office accused us of supporting the business side of this debate by implying that we would attack any tax opposed by business. That is false. We are “pro-business” in the sense of supporting historically proven, principled taxes on business. The governor’s gross receipts taxA gross receipts tax, also known as a turnover tax, is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. doesn’t meet that test.

We studied the new Blagojevich tax proposal in the name of good tax policy, and we raised the alarm at his gross receipts tax. In fact, we are joined by tax experts all along the political spectrum who are denouncing the growing momentum behind state-level gross receipts taxes.

We have frequently and openly sparred with state business groups when they support poor tax policy. Most recently we engaged in a very public debate with the Ohio Business Roundtable — ironically, over a proposed gross receipts tax. In that case, as in this one, we opposed its enactment.

As we have written on a number of occasions, gross receipts taxes violate almost all principles of sound taxation. They have an irrational tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , distort the free market, and create incentives for businesses to structure poorly. Above all, they hide the true cost of government — which is why they have such an appeal to politicians.

Instead of ignoring the data, the governor should take this as a warning. States with sound business tax structures show much higher levels of economic growth than those with poor business tax structures. If he chooses to go ahead with the proposal, the people of Illinois should be made aware of the consequences.

It is important to note that, despite the personal attacks, the governor has not disputed our conclusions. And through his representatives, he has admitted that his tax plan would be a “large increase.” In our study, we found it to be more than just “large.”

The way Tax Foundation economist Jonathan Williams measured it — as a percentage of the entire Illinois economy and then again as a percentage of the budget — it would be the largest tax hike ever passed at the state level this decade if it passes in its current form.

This fact is not in dispute. Our data come straight from the Census Bureau and the National Association of State Budget Officers — neither of which, as far as we know, are “funded by big business.”

The mission of the Tax Foundation is, and has always been, to educate taxpayers about tax policy and to be honest about the burdens taxpayers will face if a particular policy path is chosen. We welcome this debate with anyone — be it the Illinois governor, the Ohio Business Roundtable, Democrats, Republicans, or otherwise. We only hope they can maintain a high level of discourse during that debate and avoid personal attacks in the future.