It's All About The Children Of Illinois
April 04, 2007
We, the fine lawyers of the state of Illinois, are in line to be a major sponsor of free health care for all children.
That's right. Apparently the state coffers are a bit anemic and we get to be part of the tonic that brings them back to good health.
The governor has proposed a "new" tax whereby every business -- including law firms -- will fork over 1.8 percent of its gross receipts every year. It's cleverly called "the gross receipts tax" (GRT).
The details are not finalized, but according to a study done by Program Analysis, Inc., for Assessor Jim Houlihan, 1 percent of gross receipts would yield $13.5 billion to the state. How about that? That tiny little 1 percent brings in all that money and pretty much solves everything.
I was so excited I went right home and told my wife, knowing she would be so proud of me that I was part of the new sponsor group for health care insurance for children.
"Isn't that wonderful, honey?" I asked.
"Let me get this straight. You work and the government takes 1 percent of the gross -- not the net -- from your firm?"
"Yes, that's right. But the cause, think of the cause," I said, simultaneously buzzing and beaming.
Now where does the sponsorship role for 80,000 Illinois lawyers come in? Well, law firms usually distribute the profits, after which partners then pay income taxes. And all of us have to admit that only allowing our money to be taxed once is a bit stingy, especially when it comes to helping a sick child.
So why hasn't anybody come up with this before?
The state of Washington did. In 1933 they instituted a temporary gross receipts tax as a stopgap measure to balance the budget because the state supreme court ruled that the corporate income tax was unconstitutional.
It is now called the business and occupation tax. The name was temporary, but, thank God, not the tax itself. What would have happened to the children?
New Mexico (very low property taxes) has a gross receipts tax that goes as high as 7.8 percent, which is needed because a lot of sick children are usually crossing the border. Texas (no income tax) is at 1 percent and South Dakota (no income tax) is at 6 percent. Hawaii is as high as 5 percent, but if you're lucky enough to live there, then don't complain about money.
In Ohio, gross receipts in excess of $1 million are taxed at .26 percent, which the state probably uses to promote Cleveland tourism. Delaware has a gross receipts tax of roughly 1-2 percent, but does not have local or state sales taxes. I didn't think they did anything out there but incorporate companies, so not sure why they need money.
New Hampshire has a business enterprise tax, which levies at .75 percent of gross receipts. They also have a business profits tax of 8.5 percent and the highest property tax in the U.S. -- but no sales or personal income tax.
Indiana has tried a gross receipts tax -- and abandoned it in 2002. West Virginia tried it -- and ended it in 1987. Michigan had it, but is phasing out its single business tax (SBT) as of Jan. 1, 2008. Not sure what happened in those states.
Maybe the gross receipts tax system worked really well but those states just don't have any sick children. That's probably it.
One of the criticisms is that in states that have GRTs, the first thing that happens is the legislature starts carving out exceptions and exemptions.
The other question is, what if the 1.8 percent isn't enough to heal the children? What would, for example, 3 percent do to law firms, not to mention other professionals in the service industry?
A law firm with gross receipts of $100 million operating on a 20 percent profit margin would see a $3 million cut in profits. That is a 15 percent reduction in net profits.
Another criticism is that because it touches every business in a production cycle, a gross receipts tax pyramids on products, since a tax is imposed at each stage of a production cycle. But let us not pick nits.
The plan for 2007, as described in a memo from Program Analysis dated Jan. 8, 2007, is to reduce property taxes by $4.5 billion, provide $1.6 billion to schools, increase individual income taxes to 4.5 percent, and replace existing business taxes with a tiered gross receipts tax.
Hard to say what the bottom line is for law firms and attorneys. Billions more in taxes will have to come from somewhere.
But as a sponsor, I have to think law firms will get some perks. That usually goes with the territory.
Cellular One gave the White Sox money and they received seats overlooking the Dan Ryan so they could get some reception with their phones. Cialis sponsored the Western Open and received 20 sets of beautiful new clubs with stiff shafts.
Maybe we'll get t-shirts. Better yet, maybe all the law firms will get free health care for life. We may need it. This plan could make us sick
