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National Editorial & Columnists

Michael Madigan sends a message on taxes and jobs

Ambitious plan would lessen business costs

One day after Gov. Pat Quinn’s State of the State address, the most influential politician in Illinois told all of us something else about the state of the state: Illinois has to jump-start its economy.

We hope this is the beginning of something big. As speaker of the state House and head of Illinois’ dominant political party, Michael Madigan has the power to drive discussions on taxes and spending. He proved that anew last year when he successfully shepherded passage of public pension reforms similar to the plan he championed.

On Thursday, Madigan set off in a new direction, proposing to cut the state’s corporate income tax. Putting his name (and clout) behind a nod to hard-pressed businesses is a dramatic move for a Democratic leader – but in this case it’s also a tacit acknowledgment that Illinois is at a serious disadvantage in competing for jobs with Indiana, Michigan, Missouri and many other lower-tax states.

As a result, Illinois’ unemployment rate, mired at the 8.6 percent it was a year ago even as the national rate has fallen, is third-worst among the states. And for 2014, the nonpartisan Tax Foundation ranks Illinois’ business tax climate a moribund 31st-best. That ranking rests on each state’s position in five categories, with the corporate income tax – Illinois’ is the nation’s fourth-highest – among them.

Madigan didn’t mention Quinn’s calls for raising the minimum wage, requiring employers to provide sick days, and spending initiatives that would put further stress on the state budget at a time when Illinois has $7 billion in unpaid bills. He instead blew past Quinn’s rhetoric about somehow growing Illinois’ economy while slapping new costs on employers. The details of Madigan’s proposal define its more ambitious scope:

n The Illinois corporate income tax today is 7 percent, in addition to a second tax on businesses, a 2.5 percent levy called the personal property replacement tax. Under current law, the corporate income tax is scheduled to drop back by one-fourth next year, to 5.25 percent.

n Madigan would cut a second one-fourth, dropping the corporate income tax to 3.5 percent as of now, January 2014.

n Because he wouldn’t change the personal property replacement tax, the total tax on employers would fall from today’s 9.5 percent, and next year’s scheduled 7.75 percent, to an immediate 6 percent.

n Madigan says the tax cut would cost Springfield $1.5 billion on a full-year basis, an amount he hopes would be offset by new tax revenue from faster economic growth.

n A caveat: The National Federation of Independent Business says three-fourths of Illinois businesses, often smaller employers, pay the state’s personal income tax rate rather than the corporate rate. Thus they wouldn’t benefit from Madigan’s proposal. The personal rate for all Illinoisans is scheduled to roll back next year from today’s 5 percent to 3.75 percent.

Madigan’s move will encourage some fellow Democrats to boast during an election year that his plan would foster job creation.

But calling for a tax cut complicates politics for other Democrats who argue that Illinois needs more tax revenue, not less. ...

For now, Madigan has telegraphed that the pension reforms he helped pass are far from enough to rejuvenate this state’s languishing economy. ...

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