'Privilege tax' bills described as Illinois exit signs
Rather than bring in more money for the state, a pair of bills would probably drive more businesses out of Illinois, the founder of a financial website says.
The bills, each of which would tax hedge fund managers and investment management service providers an extra 20 percent, are working their way through the Illinois General Assembly.
The Senate is considering SB1719, which was sponsored by Sen. Daniel Biss (D-Evanston), and the House is reviewing HB3393, sponsored by Rep. Emanuel Chris Welch (D-Hillside).
Both bills would impose "a privilege tax at a rate of 20 percent on partnerships and S corporations engaged in the business of conducting investment management services."
Mark Glennon, founder of the financial website Wirepoints, told the Sangamon Sun that the bills could mean more hardship for a state that is already losing citizens in droves and has been operating without a budget for two years.
“Many of those businesses will just leave the state,” he said. “Why would you want to disrupt one of the few sectors here in the state that is actually still thriving? The even-bigger danger is the horrible message this would send to all the successful businesses now serving the state in this capacity.”
Glennon sad the nature of the two proposals struck him as so ludicrous he thought it was just a case of Democratic legislators grandstanding to score points with their base. But as the bills have progressed he said he's come to realize lawmakers are serious about causing even more damage to the state’s already fragile economy.
“These measures would also devastate the growing tech sector we have here because that sector is so dependent on venture capital,” he said. “You’re talking about major damage being done on a number of major fronts.”
The bills have the support of the troubled Chicago Teachers Union, which has led some to speculate the union might see the additional tax dollars as a way to cover its failing pension plans.
“As part of his race for governor, Biss has obviously decided to go extreme,” Glennon said. “He’s put his ambitions ahead of the state. The only valid rationale for this bill is they want to undo the carried interest tax break that allows fund managers to get tax breaks.”
Supporters of the bills argue that they would close a federal loophole that allows wealthy people to get around paying roughly a half-billion dollars in taxes to a state already mired in debt.
Glennon countered that the language of the bills shows contempt for private equity workers.
"It plays on the hatred against wealthy people and the sector Gov. Rauner came out of," he said.
A recent U.S. Census Bureau report showed Illinois has been losing tens of thousands of residents in the past few years, with many of them citing rising taxes and a lack of faith in government as key factors in their decision to leave.
“These proposed bills would only make matters worse,” Glennon said. “The outward migration you’re seeing now would actually become a flood.”
Michael Lucci, vice president of the Illinois Policy Institute, laments that all of the defections are made worse when you break down who's actually deciding to uproot.
According to Lucci, most of those who've left the state are taxpayers who earn much more on average than those who have arrived in Illinois over the same period.