STUMP » Articles » Taxing Tuesday: Yeaaaaah, It's About Illinois » 7 May 2019, 04:11

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Taxing Tuesday: Yeaaaaah, It's About Illinois  

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7 May 2019, 04:11

I know what I said…that I’d let off Illinois for a while.

But, with regards to tax changes, they’re kinda busy this year with stuff. If I’m going to keep covering tax issues… Illinois is going to be big.

Because the Illinois Senate has passed what Pritzker wants – Illinois constitutional amendment on income tax rates clears state Senate

CHICAGO (Reuters) – The Illinois Senate on Wednesday voted to put a proposed constitutional amendment on the ballot to replace the state’s flat income tax with graduated rates in order to raise more than $3.3 billion a year for the financially shaky state.

The measure, which now heads to the House, is the main component in Democratic Governor J.B. Pritzker’s plan to address Illinois’ fiscal woes, which include a huge unfunded pension liability and a chronic structural budget deficit that have dropped the state’s credit ratings to a notch or two above junk.

The Democrat-controlled Senate passed the resolution in a 36-22 vote. If approved by a required three-fifths majority vote in the House, which is also run by Democrats, the amendment would appear on the November 2020 ballot.

Too bad they didn’t think of passing an amendment allowing Chicago and Illinois to actually do some kind of pension reform.

Well, that was the easy part. Now it goes to the Illinois House:

Illinois graduated tax plan will face tougher audience in state House

The legislative package heads to the House where it faces a tougher road to getting to a required three-fifths supermajority of 71 votes. Some Democrats have seen pushback in their districts and raised concerns over the move’s long-term impact on tax rates; Democrats hold 74 seats to the GOP’s 44.

But even if it gets past the House…

The constitutional amendment resolution does not require the governor?s signature. It would go directly to voters on the November 2020 ballot where it would need either a 60% approval rate of voters casting a decision on the measure or a majority of those voting in the election.

Hmmm.

Let me just take a quick look at how the gubernatorial race went…

Pritzker got about 55% of the vote. Hmm. Well, that wasn’t a Presidential election year.

Let’s see how the Illinois vote went in 2016…:

Vote for Hillary Clinton: 55.8%
In 2012, the vote for Obama was 57.6%.

Guys? I think that 60% threshold may be difficult to breach.

Especially since I bet a lot of the Clinton/Obama voters will be voting against it.

Pritzker has a tough story to sell — the “Fair Tax” is very thinly veiled foot-in-the-door, “We’re just gonna target the richies!” …but once the constitutional amendment is passed, the tax payer population can be carved up into various groups, as long as they can keep an electoral majority together. Because taxing just the very very highest income people will not be enough to fill all the holes in Illinois.

Let’s take a look at some commentary:

Dan McCaleb: Proposals meant to sweeten progressive tax plan are a ruse

If you didn’t think Democrats in Springfield were serious before about adopting a progressive tax system, they proved this week they’ll do almost anything to help Gov. J.B. Pritzker pass his signature campaign promise.

Even if that means reversing themselves on years of bad policy positions.

Senate President John Cullerton upped the ante Tuesday when he introduced a measure that would eliminate the state’s crippling estate tax, otherwise known as a death tax.

Uh… what? Is that on message?

Conservatives have been trying to get rid of Illinois’ estate tax for years, but the Democrat-controlled General Assembly resisted – until Tuesday, when Cullerton’s proposal was introduced.

Of course, there’s a catch.

The estate tax goes away only if voters approve a constitutional amendment in November 2020 to allow for a progressive income tax rate in which higher wage earners are charged higher rates. The Senate’s plan calls for a top rate of 7.99 percent on individuals who earn $750,000 or more and couples who earn $1 million. That would be up from the existing flat tax of 4.95 percent.

Oh, Cullerton is being “clever”. What bullshit.

It can be pretty easy to avoid the Illinois death tax. MOVE TO A DIFFERENT STATE.

(To be sure, you can avoid Illinois income taxes that same way. But income taxes are every year… and the death tax is only once.)

Another sweetener filed this week came from state Sen. Andy Manar, D-Bunker Hill. Manar’s measure would freeze school property taxes in years when the state meets its education funding responsibilities, which by itself is a tough ask.

But Illinoisans pay the second-highest property taxes in the country. Property tax relief would be welcome news to lawmakers because it would be welcome news to their constituents.

Like Cullerton’s proposal, Manar’s is tied to final approval of the progressive tax structure. Another carrot for another bought vote?

That one actually has a better tie to annual revenue sources.

Remember the last time income taxes were increased:

When lawmakers passed a temporary income tax increase in 2011, the new revenue was supposed to go to pay down the state’s massively underfunded pension systems, estimated at the time to be just under $100 billion. The pension deficit has since grown to more than $134 billion.

And the permanent income tax hike approved in 2017 was supposed to right the state’s fiscal ship. Instead, Illinois faces a fiscal deficit of more than $1.2 billion this year and still maintains a current backlog of bills of nearly $8 billion.

More on Increased taxes in Illinois:

When taxpayers trust Springfield … Part 2: ‘Give us the tax hike, we’ll fix Illinois!’
….
This year’s tax push evokes the notorious night of 1/11/11 when Democrats passed their 2-percentage-point increase in the income tax. Democrats assured one another — and taxpayers — that, Honest, give us the tax hike, we’ll fix Illinois!

We still have our recording of Senate President John Cullerton’s full-throated assurances: “The purpose of this bill is to raise enough money so that we can continue to pay our pensions without borrowing the money. To pay off our debt. To have enough money to pay the interest on that debt. And, for the first time ever, establish caps on how much we can appropriate. … We have just come through the worst economic crisis in our lifetimes. And we have not paid our bills.”

…..
Did lawmakers eliminate their pension debt? Pay those bills? Deliver balanced budgets? No Illinois tax hike is ever enough: Today the state’s unfunded pension obligation is one-third higher than it was in 2011. The state’s unpaid bills total far more than they did at the time. And not one subsequent state budget — this year’s included — is balanced.

Imagine what might have happened if, instead of relentlessly raising taxes, majority Democrats had reduced state spending and helped amend the constitution to reform its rigid pension wording.

So if you speak with your state representative before the House votes on graduated-rate income taxes, remind him or her of Springfield’s record of misleading taxpayers. You’re welcome to join us in repeating to the Democrats a point we’ve made before:

Be honest. Admit to voters that for all your talk of “fairness,” you came up with this plan because you want private-sector workers and companies paying much more into your public sector.

Duh.

GEEKING OUT ABOUT TAXES AND ACCOUNTING

Oh, I am going to have a bit of fun here.

An op-ed against Elizabeth Warren’s bright idea to change corporate tax accounting:

Sen. Elizabeth Warren is campaigning for president like Robin Hood in the Hamptons. But the Massachusetts Democrat’s proposed Real Corporate Profits Tax — her plan to tax highly profitable companies on their financial accounting incomes — may do more harm than good to the working class she claims to champion.

The U.S., like other developed nations, uses two accounting systems. Companies report income to investors following Generally Accepted Accounting Principles, or GAAP, which are determined by the private, nonpolitical Financial Accounting Standards Board. The paramount purpose of this standard is to provide investors with information they can use to allocate capital soundly.

To file their taxes, companies follow different accounting rules, defined by the Internal Revenue Code. Congress has multiple goals in the way it defines the corporate tax, from raising revenue and redistributing wealth to regulating companies’ behavior and increasing U.S. competitiveness.

But, they’re wrong! We have more than two accounting systems. On top of that, there’s insurance statutory accounting!!!!

Okay, that’s the day job, but it does intersect GAAP and tax accounting. I’m not going to explain how.

But there are even other accounting standards out there — GAAP is required only for the publicly-traded companies, etc. There’s a standard called IFRS, which is an international standard, and many companies…

via GIPHY

… okay, fine. I’ll stop. Let’s just say there are multiple accounting standards out there, and they all have different purposes. The statutory accounting for insurance companies is there to protect policyholders. GAAP accounting is intended to inform shareholders. Tax accounting is a creature of politics, and there are reasons that politicians have made it very complicated.

If taxes become tied to GAAP earnings, financial accounting standards will inevitably be distorted. Politicians would pressure the Financial Accounting Standards Board to adjust GAAP in a way that increases government revenue, or punishes or rewards certain corporate expenditures. In short order, financial reports would come to reflect Congress’s objectives, and investors would demand that companies release separate non-GAAP income numbers to provide the information they need to make decisions. Non-GAAP earnings aren’t defined by an external body, and they usually leave out costs like restructuring charges, asset impairments and share-based compensation. This subjectivity could make them misleading and therefore controversial.

Another problem would emerge when savvy companies fight back against the new tax. They would quickly develop techniques to avoid the real-profits tax by changing their accounting assumptions and staying on the inexpensive side of key thresholds over which the tax kicked in.

Consider Amazon, which Ms. Warren invoked in her proposal. In 2018 Amazon reported $11.2 billion of U.S. income, following GAAP. But following the tax code, Amazon reported no taxable income to the Internal Revenue Service. The discrepancy arose because Amazon reported an $11.4 billion expense in share-based compensation to the IRS, but not to shareholders.

Now suppose Amazon knew it would pay a 7% tax on the $11.4 billion of financial-accounting income. Jeff Bezos wouldn’t simply sit back and take it. Amazon would stop issuing share-based compensation, more than 99% of which goes to employees outside the C-suite, whom Ms. Warren supposedly wants to help.

In some cases, tax law is structured so that certain expenditures will get taxed on an individual income basis, as when he CEO gets certain goodies, as opposed to a corporate tax.

But the main point is that Congress made all these rules for tax accounting. They can change those. But there are reasons they put in all those fiddly bits, and it usually was because they wanted to provide incentives to certain things.

For example, certain employee benefits are tax-advantaged, both for the employee and the employer (and some just for the employer). Congress did that. They could yank away the tax-advantaged status of employee benefits, like health coverage. Wouldn’t that be amusing?

The thing is, people yammering about this stuff don’t even understand that accounting standards can differ, and that they have different goals. GAAP was never intended to be a basis for taxation. If Congress thinks too many things are deductible in corporate income tax, they can just remove those deductions.

TAX STORIES

Do these guys really believe the bullshit coming out of their mouths?

TAX TWEETS



Dear lord, the Trump tax return stuff is stupid. And I understand Larry Tribe used to be a respected legal mind.

via GIPHY





Oh, this could get really funny.





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