NCPA - National Center for Policy Analysis


March 9, 2007

Illinois Gov. Rod Blagojevich's (D) idea for expanding the state's health care program and reforming education are not necessarily bad, if the state can pay for it.  But that's the problem, says the Herald & Review.

Gov. Blagojevich's method of paying for his health care expansion and having more money for schools is a gross receipts tax:

  • The tax would charge businesses on the amount of money they collect, not just their profits; it would average about 1 percent, although it varies by industry group.
  • Corporations paying the gross receipts tax would receive 100 percent credit off of their state corporate income tax.
  • Retail sales of food and drugs would be exempt, as would businesses with gross receipts of less than $1 million a year; the governor says that's about 75 percent of the businesses in the state.

On the surface, taxing businesses that aren't paying corporate income tax may seem like a good idea, but there is no free lunch, says the Herald & Review:

  • Most industries, when faced with higher taxes, have little alternative except to increase prices or move out of state, that's simple economics.
  • The tax also builds upon itself, called pyramiding; as a product goes through the production process, manufacturers, distributors and retailers will all have to pay the tax.

There's another factor to consider.  Illinois is not an island and competes for jobs with neighboring states.  Not many are going to be attracted to the state if they have to pay a gross receipts tax in Illinois but not in Indiana, Iowa, Missouri, Kentucky or Michigan, says the Herald & Review.  Indiana rescinded its gross receipts tax two years ago, figuring that it was hindering job growth in the state.  The competition for jobs is fierce, and taxes usually are a big part of the decision-making process.

Source: Editorial, "Tax by any other name still affects taxpayers," Decatur Herald & Review, March 7, 2007.


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