Illinois' Welfare State - for Really Big Corporations

Illinois corporations are leaving and threatening to leave Illinois.

To stop this exodus, the Democrat-controlled Illinois Legislature is offering tax breaks to a number of really big corporations. Those breaks will be paid for by you, me and small businesses. A cynic might call this "welfare for large corporations."

In case you missed it, in January of 2011, the Legislature raised Illinois' corporate income tax to 9.5 percent. No Republicans voted for the increase, either in the House or the Senate.

At the time, Gregory Baise, head of the Illinois Manufacturers' Association, according to the Dec. 13, 2011 Huff Post Chicago, predicted that "the only businesses that will benefit (will be) the moving companies. They will be helping many of my members (corporations) move out of (Illinois)." Illinois has a "state bird." Maybe Mr. Baise should be named "state prophet!"

Last month Office Depot Inc. and OfficeMax completed a $1.2 billion merger. the new company will be called Office Depot. Prior to the merger, OfficeMax was based in Naperville, Office Depot was headquartered in Boca Raton, Fla.

The new Office Depot has picked Boca Raton, for its global headquarters, over the Illinois home of OfficeMax, its merger partner. Both companies, of course, asked for tax breaks from Florida and Illinois.

Office Depot Inc. had sought a $53 million EDGE tax credit from Illinois over 15 years. When the incentive failed to pass the Illinois House, Office Depot opted to locate its new headquarters in Boca Raton.

Office Depot CEO Roland Smith said that, after assessing its options, the company determined Boca Raton provided a way for it to drive better profitability and reach planned savings. Businesses prefer to be profitable! According to Mr. Smith, Office Depot looked at a number of factors, including the cost to run each location, lease obligations and sublease considerations, government incentives and tax implications.

Prior to merger, OfficeMax had about 1,600 employees at Naperville. Office Depot Inc. had about 1,700 in Boca Raton. We are told that it is too early to estimate how many OfficeMax employees might move to Boca Raton. It does not appear that any of the 1,700 employees of the old Office Depot Inc will be moving to Illinois.

At the same time Archer Daniels Midland Co. (ADM) has been discussing relocating its corporate headquarters with representatives from St. Louis, Minneapolis, Dallas, Atlanta, etc. Presently ADM has its corporate headquarters in Decatur.

To induce ADM to retain jobs in Decatur and relocate its headquarters to Chicago, Democrat State Sen. Andy Manar, of Bunker Hill, wants the legislature to give ADM a $24 million Edge tax incentive -- $1.2 million over 20 years.

Directly upon learning that Office Depot was heading to Florida, State Sen. Bill Brady, R-Bloomington, called on Gov. Pat Quinn to bring the House back to Springfield to pass an incentive package to keep ADM in Illinois. (capitolfax.com/2013/12/10/officemax-react/).

So, why are corporations leaving and threatening to leave the state? The Tax Foundation has the numbers.

Look at what Illinois, with its 9.5 percent corporate income tax, is competing against: Colorado, 4.63 percent. Florida, 5.5 percent. Georgia, 6 percent and Alabama, 6.5 percent.

Look at the combined city and average local sales tax rates: Illinois, 8.13 percent. Florida, 6.62 percent. Colorado, 7.39 percent. Georgia, 6.69 percent. Alabama, 8.48 percent.

Or look at the Unemployment Insurance rates and taxable wage base. Illinois' highest rate is 8.4 percent on a taxable wage base of $12,740. Florida's is 5.4 percent on $7,000. Georgia's is 5.4 percent on $8,500. Colorado's is 5.4 percent on $10,000. Alabama's is 6.7 percent on $8,000
So, when it is cheaper -- more profitable -- to do business in other states, why would any company choose to remain in Illinois? The answer is simple.

Illinois bribes them to stay here with corporate welfare. If you're big enough, the Legislature will give you breaks that are not available to little businesses.

In Dec. of 2011, Gov. Quinn signed legislation that granted tax breaks and incentives aimed at keeping two large employers in Illinois: Sears Holdings Corp. and CME Group Inc. (operator of the Chicago Mercantile Exchange).

According to the Chicago Tribune, the deal gave Sears tax credits worth $15 million a year for 10 years, which it can use against withheld employee income taxes. The deal also would extend a special taxing district, reducing the company's local property tax bill for another 15 years. CME expected to pay about $158 million for 2011, less than Illinois's 9.5 percent corporate income tax. The legislation is expected to cut that tax bill by nearly half.

The governor justifies the raid on the Illinois treasury as follows: "You have to defend yourself. If Ohio is offering $400 million to Sears, a company that has thousands of employees in Illinois, we will defend ourselves with a reasonable, adequate approach."

I'm sorry. This stinks. President Obama says it's fair to tax the rich to benefit the poor. Gov. Quinn, House Speaker Michael Madigan, Senate President John Cullerton and their cronies in the Legislature have it the other way around: tax the small guy to benefit the rich.

The solution isn't to incentivize big corporations by bribing them to stay in Illinois. The real solution is to lower the corporate tax rate for all corporations. Do that and the incentive for all corporations to relocate out of Illinois will disappear. Of course, that might require some fiscal discipline, and that is unknown in Springfield.


Posted Online: Dec.  20, 2013, 12:00 am - Quad-Cities Online
by John Donald O'Shea

Copyright 2013
John Donald O'Shea


John Donald O'Shea, of Moline, is a retired circuit court judge.