Special Tax Breaks Go to Big Corporation
|January 9, 2007||Posted by Staff under Archive, Progress Report, The Progress Report|
Corruption and Special Privilege
Secretive Corporate Welfare Deal in Illinois
Below are portions of an op-ed article from the Chicago Sun-Times of June 9, 2001.
Boeing Gained in Move to Illinois, But Did Citizens?
by Ralph Martire
The dust is finally settling from another budget stampede in Springfield. As the air clears, those of us who care, you know – taxpayers, are wondering – did our state legislators do a good job prioritizing the use of public money? Did they allocate enough to education, child development, healthcare and public safety? What about economic incentives – is the state getting any bang for its tax subsidy buck?
Well, the answer is, it’s hard to tell. Part of the problem is Springfield budget negotiations are clouded in the kind of secrecy that would make the Kremlin proud. But when it comes to assessing incentives the state gives to business, the real problem is a lack of accountability.
Take, for example, the much ballyhooed Boeing incentives. Everyone says it’s a great deal to give Boeing $50, $41 or $30 million (depending on its final structure) of taxpayer money to locate its headquarters here. Touting the Boeing subsidy as a “great investment”, Governor Ryan insists that all public money we give to Boeing now will more than come back to the state later. I want to believe him. The problem is, there is no way to know whether the governor’s evaluation is on the mark. Why? Because Illinois is giving Boeing its cash subsidy in the form of a “tax expenditure”.
“Tax expenditure” is just a fancy way of saying Illinois is letting Boeing keep money it otherwise would rightfully owe in taxes. Say the legislature settles on $41 million for Boeing’s subsidy. Economically, this $41 million tax expenditure works the same as a direct cash payment from Illinois to Boeing – that is, state revenues are reduced by $41 million and Boeing’s coffers are increased by $41 million.
However, there are two important differences between the state making direct payments versus giving tax expenditures. First, direct payments are closely monitored, tax expenditures are not. So, if Boeing were receiving an economic development grant from the Department of Commerce and Community Affairs (“DCCA”), it would have to report back to the agency regularly, to demonstrate Boeing was meeting whatever development goals DCCA established. If not, DCCA would cut off the grant and use the money for another program. But because Boeing gets its subsidy through a tax expenditure instead, it does not have to produce any specific results to receive its $41 million. No monitoring, no reporting, no accountability.
Second, direct state payments come out of the operating budget of a government agency, in Boeing’s case, DCCA. This would reduce the amount of money DCCA would have for making other expenditures. In other words, an intentional choice would have been made to spend taxpayer dollars on Boeing incentives, rather than other DCCA programs.
Tax expenditures, on the other hand, do not come out of any specific agency’s budget. Instead, they reduce the state’s revenue intake. This means no deliberate spending choice is made. Instead, there is simply less money available for things like schools, roads, police, healthcare, etc. Even worse, no government agency feels the pinch of having the subsidy dollars come out of its budget. Once enacted, tax expenditures like Boeing’s no longer have to compete for financing with other programs in future budget battles – no public debate over whether the subsidy money is well spent, or would be better used elsewhere.
These problems could be easily eliminated if Illinois followed the example of other states and enacted accountability legislation. This would accomplish a number of important goals. For instance, the legislature would have to tell the public what exactly it expects to receive in the form of job creation or economic development from the proposed subsidy.
Moreover, any business that received a subsidy would have to account to the state for producing very specific results. This is only fair, since taxpayer money is going to a private business, giving it a government financed advantage over its competitors (who, by the way, are paying their fair share of taxes). In Boeing’s case, we could monitor Governor Ryan’s assumption that the state’s $41 million investment will actually pay dividends. If it doesn’t, the legislature could remove the incentive or require Boeing to repay some of the subsidy. Better still, the state could do a cost-benefit analysis of all existing “tax expenditure” investments (something it currently cannot do), and continue the good ones, while eliminating the losers.
I am not saying the Boeing investment is a poor one. But I am saying the legislature should be accountable to taxpayers to demonstrate its effectiveness.
Ralph Martire is executive director of the Illinois Tax Accountability Project, a bi-partisan think tank committed to ensuring the Illinois tax system is both fair and sound.
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