SPRINGFIELD – House Speaker Michael Madigan on Thursday proposed cutting Illinois' corporate income tax in half in an effort to improve the state's business climate, a move that also could help blunt election-year criticism that Democrats' policies are to blame for a sputtering economy and stubbornly high unemployment.
The legislation would cut the rate from 7 percent to 3.5 percent, effective Jan. 1, 2014. The powerful Chicago Democrat said it would save businesses an estimated $500 million to $700 million in the current fiscal year, which ends June 30.
"I am hopeful this legislation will encourage CEOs to grow their workforces with good paying jobs," Madigan said.
But business groups offered tepid praise, saying it would impact only a fraction of Illinois companies and that other taxes – particularly the personal income tax - are of greater concern.
Kim Clarke Maisch, Illinois director of the National Federation of Independent Businesses, said 75 percent of small businesses are organized in such a way that they pay personal income taxes on all business income. According to the Legislature's Commission on Government Forecasting and Accountability, of the companies organized to pay corporate income tax, about 70 percent had no tax liability in 2010.
"It's a step in the right direction, but the real job creators are small business owners, so if we're looking to give them relief, it would be better if we were to focus on the personal income tax as well," Maisch said.
Speaking to reporters in Chicago, Gov. Pat Quinn said he hadn't talked to Madigan and wouldn't say whether he supported the idea in advance of next month's budget address.
"We'll be preparing a budget," Quinn said. "We'll look at everybody's concepts."
Democratic lawmakers in 2011 approved a temporary tax hike as a way to address Illinois' fiscal crisis. It raised the corporate income tax from 4.8 percent to 7 percent and the personal income tax from 3 percent to 5 percent.
Republicans have made the tax increase a big focus heading into the 2014 election, arguing that the Democrat-controlled Legislature squandered the billions in additional revenue and that the hike drove businesses out of state. They note Illinois still has a roughly $6 billion backlog of unpaid bills and one of the highest unemployment rates in the nation.
The issue also has become more prominent this year because the higher rates are scheduled to roll back on Jan. 1, with the corporate rate dropping to 5.25 percent and the personal income tax to 3.75 percent. Those changes would reduce revenues by about $2 billion in the second half of the next fiscal year, forcing lawmakers to either cut spending or pass new tax legislation.
One such proposal, backed by some Democrats, would replace Illinois' flat personal income tax with a graduated tax, in which higher earners pay more. Supporters say that's a more fair tax, and that it would generate more revenue.
Rep. David McSweeney, a Republican from Barrington Hills, is one of the major opponents of the graduated income tax proposal, which he says would unfairly burden small businesses and farmers. But he said Thursday he called Madigan's bill to cut the corporate tax "very positive." He said he also would like to see the personal income tax cut.
Madigan said he wants his proposal to be part of a bigger discussion lawmakers are having about corporate tax incentives and tax policy. The second in a series of hearings on that topic is scheduled for Tuesday.
Todd Maisch, executive vice president for the Illinois Chamber of Commerce, said Madigan's proposal was welcome as much for the change in tone.
"It does change the overall tone of the tax debate in 2014, which is very important because employers have felt under the gun for a number of years now," Maisch said.