Big Illinois Firms Wrest Tax Deal From Legislature

A year ago, Illinois needed revenue so badly that lawmakers raised corporate income taxes by 46 percent and personal income taxes by 67 percent. This month, the legislature granted hundreds of millions of dollars in tax breaks to two of the state’s largest and most recognizable companies.

It’s not that revenues have rebounded so dramatically that Illinois now can afford to return money to the private sector. Instead, it’s that the inter-state jobs competition has become so fierce that many Illinois legislators felt that they had no choice, even though the state still faces serious budget problems.

The companies that will receive the new tax breaks — Sears Holding Company and the CME Group, which operates the Chicago Mercantile Exchange and the Chicago Board of Trade — each have made Illinois their home for more than 100 years. They are politically powerful, and both publicly threatened to move out of state unless legislators gave them a good financial reason to stay. Sears threatened to take 6,000 jobs along with it.

With Governor Pat Quinn’s signature this week, the two firms got what they wanted. As the Chicago Tribune reports , Sears will get tax credits worth $15 million a year for the next decade, in addition to a property tax break. CME will be reclassified under the state tax code, sharply reducing the amount of its business that will be subject to state taxes.

For the lawmakers who voted for the deal, the threat of major job losses — possibly to neighboring states — became too serious to ignore, observers say. Indiana, Ohio and other states had openly courted Sears and the CME, and the discussions turned into a high-stakes negotiating game at a time when every elected official in the country wants to point to jobs created, not jobs lost.

“No one wants to be seen as responsible” for Sears or the Chicago Mercantile Exchange leaving Illinois, says Kristina Rasmussen, executive vice president of the Illinois Policy Institute, which has been critical of the tax break package. In an interview with Stateline , Rasmussen noted that the deal passed with bipartisan backing in the legislature even though, outside the legislature, it was attacked as a corporate giveaway by groups on both the right and the left. “It is the great uniter of the Tea Party and the Occupy (Wall Street) movement,” she said.

The question in Illinois now is what comes next. Lawmakers in both parties are talking about more systemic tax changes, including elimination of the corporate income tax increase that passed a year ago and has been broadly unpopular in the business community.

In the meantime, one thing is certain: Other firms will seek tax assistance when the legislature reconvenes next year. As The Associated Press noted recently ,

at least 100 of them have tax break packages that expire within the next three years.