Be Wary of New Friends

It is somewhat amusing to listen to groups representing multi-national corporations attack the gross receipts tax because it will hurt small businesses, discourage individual entrepreneurs, and be paid eventually by working families.

It reminds me of the debate on the inheritance tax when I was a member of the House of Representatives. My memory may not have the numbers exactly right but the argument being made against the tax went something like this: widows who didn’t know how they were going to pay for their next meal needed protection from a tax that exempted the first $650,000.

It is kind of the big guys to be so protective of the little guys, but one wonders what the facts are. Here are some to keep in mind.

The purpose of Governor Blagovejich’s proposal is to reduce the reliance of schools on the property tax and to extend health care coverage to working families that aren’t being covered by their employers and can’t afford to pay for it out of their wages. Without new revenue those goals will not be achieved.

Without question, the property tax is the most difficult tax for new and small businesses to pay.

Under any set of assumptions, working families will pay a smaller share of the gross receipts tax than any other alternative proposal that is being made.

The broad base and the low rate of the gross receipts tax, compared to other taxes, means that it will be spread more evenly and more fairly across all business sectors. The gross receipts tax is also simple and straightforward so it is not as subject to accounting manipulations as the corporate income tax, and is more difficult for multi-national corporations to avoid.

The Tax Foundation, out of Washington, DC, and aligned with big business, has expressed grave concern over the Illinois gross receipts tax. It has a marvelous example of a “hypothetical” small manufacturing company that somehow has its profits reduced by $10,000 as a result of the gross receipts tax even though it is too small to be subject to the tax. It seems that this small company has 30 suppliers all of whom are large enough to be subject to the tax, but none of whom pay any of the tax. Neither the sales or the profits of the 30 large companies are reduced by the tax, because they all pass the tax on to the one small company at the end of the production chain that ends up in the “hypothetical” example paying the tax for all 31 companies.


The small company is put out front like the poor widow, both to divert our attention and draw our sympathy. But even in the Tax Foundation’s fictional account the one small company has a problem only because 30 large companies pass all their tax liabilities onto its narrow shoulders. How real is that “example”? We are supposed to believe that 30 companies large enough to be subject to the tax, don’t pay anything, while one small company, small enough to be exempt from the tax, has to pay the tax for all of them.

Everyone should have a friend like the Tax Foundation looking out for them!

What are the alternatives to the gross receipts tax being suggested by those who want to protect working families? A 5 percent tax on among other things, hair cuts, funerals, doing the laundry, and home repairs, and an increase in the personal income tax from 3% to 5%. Somehow those taxes are “better” for working families than the gross receipts tax.

Be wary of new “friends”.