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Madigan proposes cutting Ill. corporate income tax

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CHICAGO (FOX 32 News) -

A top Illinois democrat wants to cut the tax on corporate profits by 37 percent.

He says a tax cut would prompt companies to hire more people, a good thing, since Illinois has the worst unemployment rate in the Midwest.

The proposal's sponsor is South Side State Rep. Michael Madigan, the powerful Speaker of the Illinois House.

The legislation would cut the rate from 7 percent to 3.5 percent, effective Jan. 1, 2014. The powerful Chicago Democrat said it would save businesses an estimated $500 million to $700 million in the current fiscal year, which ends June 30.

But here's the catch, there are so many exemptions and loopholes most companies here don't pay any corporate income tax at all.

The Illinois House Speaker said his proposal was prompted, in part, by "a new wave of businesses calling for tax breaks as a condition for relocating to or remaining in Illinois."

In that written statement, he added, "We should take a more long term approach to helping all job-creating businesses in Illinois thrive and succeed."

But the taxpayer-watchdog Civic Federation was just one of the business-funded groups with big questions about the suggested $1.5 billion business tax cut.

"Where's the forecast on where the revenue's gonna come from to replace this? Where are the spending cuts gonna come from to replace this revenue?" President of the Civic Federation, Laurence Msall, asked.

Another critic was Kim Clarke Maisch, Illinois director of the National Federation of Independent Businesses.

Clarke said 75 percent of small businesses are organized in such a way that they pay personal income taxes on all business income. According to the Legislature's Commission on Government Forecasting and Accountability, of the companies organized to pay corporate income tax, about 70 percent had no tax liability in 2010.

Critics claimed Madigan's proposal would create few new jobs.

"It's a step in the right direction, but the real job creators are small business owners, so if we're looking to give them relief, it would be better if we were to focus on the personal income tax as well," Maisch said

Center for Tax and Budget Accountability's Ralph Martire said, "It's a bad idea if his goal is to actually generate economic growth or job growth. In fact, in Illinois almost 40% of the taxes businesses pay are property taxes. The business income tax is just over 7% of the taxes paid."

Still, Madigan said cutting Illinois's tax on corporate income would send a powerful signal to multinational corporations considering the region, where the current total 9.5 percent compares to neighboring Indiana's 7.5 percent; Wisconsin's 7.9 percent; Iowa's 12 percent; Missouri's 6.25 percent and Kentucky's 6 percent.

Democratic lawmakers in 2011 approved a temporary tax hike as a way to address Illinois' fiscal crisis. It raised the corporate income tax from 4.8 percent to 7 percent and the personal income tax from 3 percent to 5 percent.

Republicans have made the tax increase a big focus heading into the 2014 election, arguing that the Democrat-controlled Legislature squandered the billions in additional revenue and that the hike drove businesses out of state. They note Illinois still has a roughly $6 billion backlog of unpaid bills and one of the highest unemployment rates in the nation.

The issue also has become more prominent this year because the higher rates are scheduled to roll back on Jan. 1, with the corporate rate dropping to 5.25 percent and the personal income tax to 3.75 percent. Those changes would reduce revenues by about $2 billion in the second half of this fiscal year, forcing lawmakers to either cut spending or pass new tax legislation.

One such proposal, backed by some Democrats, would replace Illinois' flat personal income tax with a graduated tax, in which higher earners pay more. Supporters say that's a more fair tax, and that it would generate more revenue.

Rep. David McSweeney, a Republican from Barrington Hills, is one of the major opponents of the graduated income tax proposal, which he says would unfairly burden small businesses and farmers. But he said Thursday he called Madigan's bill to cut the corporate tax "very positive." He said he also would like to see the personal income tax cut.

Madigan said he wants his proposal to be part of a bigger discussion lawmakers are having about corporate tax incentives and tax policy. The second in a series of hearings on that topic is scheduled for Tuesday.

Todd Maisch, executive vice president for the Illinois Chamber of Commerce, said Madigan's proposal was welcome as much for the change in tone.

"It does change the overall tone of the tax debate in 2014, which is very important because employers have felt under the gun for a number of years now," Maisch said.


The bill is HB4479.

The Associated Press Contributed to this report.

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