Today the Chicago Tribune published an op-ed by Nicolle Grasse, along with fellow legislators Kevin John Olickal and Rachel Ventura, “Donald Trump’s cuts broke Illinois’ budget. It’s time to make the wealthy pay to fix it.”  After a litany of complaints about the reduction in federal government aid to Illinois, they launch into a series of ill-conceived proposed tax hikes.  So allow me to explain why each of them is a mistake.

First, they propose a 10% tax on digital advertising revenue for tech companies with more than $150 million in ad revenue.   This is SB3353 and HB4894, neither of which have made it out of committee.  This proposal sounds great until you realize that there is no way that those companies will simply let this tax cut into their profits:  it will simply increase the cost of digital ads, which would actually disproportionately harm small businesses (and yes, small budget political candidates) because digital ads are more affordable than more traditional forms of advertising.  What’s more, the bill would likely be challenged in court, and lose, because the Federal Internet Tax Freedom Act prohibits taxes specifically targeting internet services, and it could be found to violate the Constitutional Commerce Clause because, among other reasons, the $150 million “tax cliff” would hit some businesses disproportionately.

Second, they propose a plan to “decouple” Illinois from certain federal tax breaks for corporations.  This is a vague statement which doesn’t appear to correspond to any particular tax hike, and I’m not a corporate tax law expert so I won’t comment on this, except to say that however appealing it might be to reject federal tax cuts, it makes it considerably more administratively complex any time there are separate rules on income, for instance, the fact that for federal taxes, workers no longer have to track and report their tips, but it’s still required for the state.

Third, they propose to increase the corporate income tax from 7% to 7.92%.  That very precise number is based on the stipulation in the Illinois constitution that corporate taxes can be no higher than an 8 to 5 ratio to individual income taxes.  The trio of legislators propose that this is a way make corporations pay their “fair share” but Illinois’ corporate income tax already ranks third-highest, and an increase would move it to second, lower than only New Jersey.  At the same time, it is hypocritical that the state taxes corporations so much while giving extensive tax breaks (and, with the mega-projects bill, proposing even more) to favored businesses.

Fourth, they want to change how corporations are taxed on their overseas operations.  They call this requiring “corporations to account for their global profits honestly,” but this would also make Illinois an outlier in how businesses are taxed on their overseas operations.  In an effort to fight against tax havens, they would create double taxation for businesses with operations in “non-haven” countries, creating protests by those countries and increasing the degree to which businesses leave Illinois.  This proposed method of taxation, “worldwide combined reporting” or WWCR instead of traditional “water’s edge” reporting, exists in a small number of other states but only paired with an alternative of the traditional method, and critics say that it would harm Illinois’ competitiveness for businesses without the level of revenue its supporters promise.

Fifth, they propose taxing unrealized capital gains.  These bills (SB3376/HB5215) would tax, at 4.95%, the increase in value of all assets owned by billionaires (combining all family assets, trusts, and their foundations), from one year to the next.   If, after paying taxes one year, a stock market crash means assets decrease instead, the billionaire in question doesn’t get a refund but just gets to offset future taxes.

To be clear, I have no particular desire to “protect” billionaires and the principle of the tax doesn’t particularly trouble me.  But there are sound reasons no other state does this.  It’s an administrative nightmare to value assets like private companies, art, or real estate.  It would require those billionaires to sell assets, possibly even liquidating private companies, to get the cash to pay the tax.  It could very easily chase away the state’s billionaires, which is already happening in California as that state considers its own wealth tax.  And the Illinois state constitution doesn’t permit a “wealth tax” so the law may be tied up in courts over the question of whether asset value increases are actually “income” before those assets are sold, or whether it’s a wealth tax by another name.  For those reasons, no matter what the theory looks like, it’s a bad idea in practice.

Five bad ideas, one right after the other.  Five ways to drive businesses out of the state.

The good news is that although this trio of legislators claim support from 40 lawmakers calling themselves the Affordability and Tax Justice coalition, these bills appear, as far as I can tell, to be too far to the left for even the Democratic party leadership to support.

Yet that’s not stopping the incumbent representative for District 53, which I believe to be a centrist/moderate area, from campaigning on them.