Illinois is undergoing a fiscal collapse, but lawmakers believe they have found a solution to repairing their near $10 billion budget gap: introduce a “privilege tax.”
The Land of Lincoln has submitted a bill that would slap a 20% tax on fees earned by investment management services, according to The Wall Street Journal.
The proposed tax would generate an estimated $1.7 billion per year from hedge funds and private-equity companies. Proponents say the new tax would be fair since these entities do not pay their federal taxes because of the carried interest loophole. It should be noted that if Congress were to eliminate the loophole tomorrow, then Illinois would still have that tax.
Senator Bernie Sanders (I-VT) had called for a similar tax during the 2016 presidential election. He wanted to establish a Wall Street tax on a wide array of financial instruments, like bonds, futures, and stocks. The senator claimed the revenues from the tax would pay for his free tuition plan.
The question is: what would prevent bankers from relocating to another part of the country or even outside the U.S.? Thanks to the Internet and mobile devices, finance has gone mobile and global. Illinois is constantly competing with not just New York and Greenwich, but also Hong Kong and London.
But leftist organizations in Chicago are hoping that Illinois can work with other states to impose a similar tax. A previous version of the bill had a provision that stated the tax would only go into effect if New York or Connecticut adopted a similar policy. The rider was axed.
Even if the measure were incorporated into the tax code, financiers would simply pass the cost on to the customer. This would prompt these same clients to start seeking out financial advisers elsewhere. If you’re a money manager in Indiana, Kentucky or Missouri, then you would hope Illinois approves the tax. Perhaps this would then lead Illinois legislators to attempt to stop investors from searching for outside assistance with another tax. Who knows?
PJ Media opines that there will be one of two outcomes with this privilege tax:
So this will either pass, or several elected officials will get considerably wealthier from bribes to vote “no.”
The legislation passed the state Senate 32-24 on Tuesday, but supporters were unable to get it approved in the House because it adjourned on the last scheduled day of the spring legislative session.
Not everyone is happy with what occurred on Wednesday, reports WQAD 8. Illinois not only faces a $9.6 billion budget deficit, bit it has become the first state in nearly eighty years to go without a budget for two straight years.
State Senator Carol Ammons (D-Urbana) says Governor Bruce Rauner (R-IL) is protecting the 1%:
The governor has made it clear that his focus is on pushing changes in state law that benefit the top 1% before he will agree to even negotiate on an honest budget. Even in the face of these demands, our caucus has shown immense compromise and willingness to work with the governor and meet him half way. What do we receive in return? Nothing but a turned back and more and more games.
Others are placing the blame on the Democrats. State Senator Jil Tracy (R-Quincy) says the Democrats “walked away from the negotiating table”:
After months of progress, I’m extremely disappointed the Illinois legislature is adjourning without a true balanced budget or meaningful reforms. Instead of working toward a bipartisan compromise, the Senate Democrats walked away from the negotiating table, passing a permanent $5.4 billion income tax hike while failing to pass crucial reforms needed to grow the economy, create jobs and provide the property tax relief Illinois taxpayers deserve.
It has been fifteen years since Illinois has had a balanced budget. Since Illinois did not pass a budget before the end of the spring legislative session, the state will be operating on court-ordered spending for a wide array of functions, including healthcare, payroll, and social services. Illinois is also facing $163 billion worth of unfunded pension liabilities and state retiree healthcare, Reuters notes.
Because of this trend, Illinois’s credit rating has been downgraded to a low investment-grade level of triple-B. This is the weakest among all fifty states.
State Comptroller Susana Mendoza described the state’s finances as “abysmal.”