Monday, December 12, 2011

Corporate Carve-Out Revolt

What is a Democratic Governor like Pat Quinn in a pork barrel blue state like Illinois to do?  

The Party's power depends upon an endless stream of government jobs with budget-busting benefits, which translates into votes.  Unfortunately, the game only works if the bill can be foisted onto a deep-pocket third party.  The fly in the ointment is those unreasonable, right-wing tax payers, who are tired of being played for a pocket.

The Democrats' preferred solution is to sew up acquiescence and hamstring resistance by invoking fairness, responsibility, family or what-have-you.  The answer is never to cut the size and scope of government, or the ever-growing class of government union employees.

As today's WSJ explains, a stickier problem is antsy corporations, which have other options than to stay and be fleeced, while being hated.  How to solve the problem created by the prior solution of higher taxes?  By granting exemptions from the hikes to entities powerful enough to lobby politicians effectively for them (n.b. think ObamaCare waivers).
In January, the Democratic legislature and Governor Pat Quinn approved a 67% increase in the state's income tax and another increase in the corporate tax that gives the Land of Lincoln the highest business taxes in the Midwest. The Chicago Merc [Mercantile Exchange], a major presence in the downtown "Loop" with 2,000 employees, says the tax increase is costing it $50 million this year. 
Indiana Governor Mitch Daniels, who has quipped that he feels like he is "living next door to the Simpsons," has already persuaded more than a dozen Illinois companies to relocate to the more business-friendly Hoosier State... Indiana is making a big play to lure the Merc to Indianapolis from Chicago, the company's home for more than 100 years. 
To keep this corporate out-migration from becoming a stampede, Mr. Quinn has been handing out sweetheart tax waivers to major employers. As we reported on June 9 ("Illinois Tax Firesale"), Governor Quinn has already offered or doled out more than $200 million this year to induce big companies like Motorola Mobility to stay in Illinois. But the spontaneous citizen combustion in recent weeks suggests that Illinois voters are losing patience with carve-outs for the politically powerful.

Darn that Occupy Wall Street movement for fomenting resentment of big corporations even while ignoring this aspect of preferential treatment. Corporations enjoy prerogatives from government in return for maintaining silence and inaction while government fleeces the middle class.

The Journal notes the wastefulness, not to mention wrong-headedness, of this never-ending cycle of fixes-to-fixes to problems that are rooted, in the final analysis, in an over-bloated public sector.
The better policy would be for the Governor and legislature to admit their blunder and repeal the tax increase on all companies, large and small. According to the Illinois Policy Institute, a free-market research shop, the cost of repealing the Quinn corporate tax increase would be less over 15 years than the cost of the new tax carve-outs. The main reason for Springfield's chronic deficits is excessive pension and health benefits to public employee unions. 
Meanwhile, taxes are killing jobs. In another study, the Illinois Policy Institute finds that Illinois was enjoying a jobs recovery until the tax hike passed this year. Then the job numbers headed south in a hurry, and payrolls shrunk by 89,000 in the six months following the revenue grab. The Illinois jobless rate is 10.1%, well above the 8.6% national rate. 

Noman has written before about Illinois' problems and Governor Quinn's stewardship of the state's finances (See "The Plan," March 18, 2011).  He wonders if voters will ever wake up and rid themselves of the mindset, and Party, that is draining that state of its vitality.  As the Journal puts it:
Democratic colleagues pretended that their midnight tax hike in January wouldn't injure the state's economy. 
This is what tax increasers always say. Nearly every day they are being proven wrong, and we hope the citizens who helped to bring down the special-interest tax bill two weeks ago remember who put the state in this fix in the first place.
 Amen to that.  It is worth remembering that the problem of corporate welfare doesn't begin with corporations.  Rather, it begins with pork barrel public spending, political patronage, high sounding oratory about fairness, and more burdensome taxes that later necessitate bribing job providers to stay put.

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