Mark Fitton Sep. 1, 2015, 7:24am


SPRINGFIELD — Rep. Jack Franks thinks he’s found a path to lead Illinois out of its budget wasteland or least get it well along the way.

Franks, a Democrat from Marengo, says he’s working on a bill that could generate nearly $3.9 billion without raising taxes.

“I think this is the path out,” Franks said. “This will be additional revenue for the state. We’ll be closing exemptions that very few get to use, and those that are taking most of these profits are … not even paying taxes in the state of Illinois.”

Franks is catching some disagreement on the “not raising taxes” part, though, because his plan would do away with several tax exemptions used by businesses, and it would significantly change the way Illinois measures and taxes corporate income.

By ending reliance on the “single sales factor,” Franks says Illinois can gain somewhere between $150 million and $216 million.

Until the mid-1990s, Illinois taxed corporate income via a three-pronged approach that took into consideration three factors: in-state sales, property located within the state, and payroll percentage going to in-state employees.

In 1996, the state dropped the latter two factors. The goal was to stimulate growth, particularly in manufacturing.

That means some of the biggest corporations in Illinois are paying only nominal portion of the of the state’s 5.25 corporate income tax rate.

Franks wants Illinois to move away from the single factor method and back to a tiered approach to recapture some of that income or profit not accountable when measured solely by in-state sales.

In addition to eliminating the single-sales factor, Franks' legislation is likely to include a laundry list of “loopholes” that he argues need closing.

For instance, he cites a foreign dividend exemption valued at $220 million and a domestic dividend exemption at $15 million. He’s also discussed ending an incentive for the production of E10 (10 percent ethanol, 90 percent gasoline), which he says would bring $120 million back into state coffers.

Franks says it’s time for rank-and-file legislators to act.

“We should not remain meek bystanders while the leaders remain entrenched. It’s not the governor’s fault … and it is not the speaker’s fault. The fault lies with us. We have an obligation to pass a balanced budget,” Franks told his House colleagues.

Not surprisingly, business interests aren’t wild about the proposal.

“Raising taxes on job creators by $3 billion annually is horrible policy,” said Mark Denzler, vice president of the Illinois Manufacturers Association.

He said the proposal amounts to “raising property taxes on employers and imposing a new tax on every job in Illinois.”

“These types of policies are why businesses and residents are fleeing the state and Illinois has a massive debt,” Denzler said. “We need to attract jobs to Illinois.”

Franks says he can understand the opposition, but he asks what’s the alternative? He says income, sales and property taxes are already weighing heavily on Illinoisans, particularly the middle class.

“The fact is we’re broke and we’re getting broker,” Franks said. “What do we do — sit here and do nothing?

The state is now two months into its fiscal year with the only significant portion of its budget approved being that for primary and secondary education.

By one estimate, compiled by Senate Democrats, the state is now spending at a pace to exceed anticipated revenue by more than $5 billion.

Franks said he thinks his bill will be ready to file this week. House Speaker Michael Madigan has met with him considering the proposal and has been supportive, Franks said.

Support from the governor’s office seems doubtful, at best.

“Rather than push a tax increase the Department of Revenue estimates would negatively impact the Illinois' economy, House Democrats can save taxpayers over $2 billion by sustaining the governor's veto of SB 1229,” Rauner spokeswoman Catherine Kelly said in an email.

Senate Bill 1229 would enable mandatory arbitration should either the state or its unionized employees declare a bargaining impasse in their continuing contract talks.

Rauner and the GOP strongly oppose the bill, saying it will take the lone elected state official charged with representing the people out of bargaining and effectively hand a big victory and big raise to the American Federation of State, County and Municipal Employees, which represents more than 35,000 state employees.

Organized labor and many Democrats argue the bill is necessary to protect unionized state workers from being forced into a strike by Rauner, whom they contend would like to drive AFSCME and other unions from state government and politics.

Rauner’s veto of Senate Bill 1229 has been overridden in the Senate, and a House override attempt is expected this week.

Mark Fitton is a reporter for Illinois News Network, a division of the Illinois Policy Institute. 

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