Tuesday, September 11, 2007

Zorn gets the corporate loophole list, particularly for the LUST fund

Good news. Eric Zorn got the list of corporate loopholes that the Governor wants to close to generate revenue.

The list is here.

The list does not include fiscal notes, likely because no one has good estimates as to what they might generate, but Zorn wrote that they will come soon. I hope they come very soon to get a sense of the size and scope of these loopholes.

It looks like the Governor's office did a good job explaining each of the loopholes to close as well.

The list looks good to me. At first blush, I think we ought to close all of them. Here's a good example:

Repeal deduction for foreign and domestic dividends received by corporations--Corporations are allowed to deduct dividends received from other corporations, while individuals are required to include dividends as income and pay tax on dividends received. Corporations exploit this loophole to create foreign subsidiaries that return profits to the U.S. parent corporation in the form of dividends, which cannot be taxed under current Illinois law. For example, an Illinois manufacturer creates a subsidiary in Mexico to manufacture widgets and closes its Illinois widget manufacturing facility. The subsidiary returns its profits to the Illinois parent as a dividend. This deduction is encouraging companies to export jobs overseas.
Why should we give a tax break to ADM or John Deere to export jobs?

And, some people think that these corporate loopholes are boring. They obviously have never dealt with the LUST fund. Check it out (cue disco ball):

Repeal exemption for fuel transported to out of state destinations --By closing this loophole, fuel stored in Illinois will be taxed at the same rate, whether the ultimate destination of the fuel is in Illinois or in another state. Currently the state collects this tax for the LUST fund (Leaking Underground Storage Tax), but gives an exemption for that fuel which is sold in another state. Fuel stored in Illinois and exported to another state poses an environmental risk so the same tax should be charged. Further, the exemption gives a gasoline retailer in a border state at $.011 per gallon advantage over an Illinois retailer, if both buy fuel from the same Illinois distributor. In addition to ending the exemption, this proposal will actually reduce the tax rate from $.011 per gallon to $.010 per gallon, thus reducing the tax on fuel used in Illinois.

Oh yes. Tell me you're not hot and bothered by generating some more revenue for the LUST fund....

Anyway, all of these loophole closings look like smart policy moves to me. That being said, we need a much higher income tax in Illinois on high incomes and the Governor should drop his opposition to that move.

And, he ought to ask his allies in the General Assembly to file some bills that actually close these loopholes. I've worked on a few bills that would have closed some of them (SB 2122, introduced by Senator Martin Sandoval in last year's General Assembly would have returned to the three-factor income tax apportionment that would have generated in the neighborhood of $100M annually), and I have no idea why these loopholes haven't been filed yet.
The sooner they get filed, the better.

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