Taxable Talk

Back Home Again in Indiana is the state song of the Hoosier State. For those in the Land of Lincoln, it’s quite likely the Hoosier State will look much nicer; this morning, legislators approved an income tax increase from 3% to 5% and a corporate tax increase from 4.8% to 7%. Though these taxes are supposed to sunset in a few years, do you really think that will happen?

Joe Kristan has more.

By the way, I’ll have a long post on California and the budget when I return from my vacation.

Illinois is broke. While other states (such as California) have higher budget deficits, on a per capita basis Illinois leads the way. Illinois has a $13 billion deficit and some vendors haven’t been paid in nearly seven months.

In last week’s election, Democratic Governor Pat Quinn beat Republican Bill Brady by less than 20,000 votes (out of over 3.6 million cast). Mr. Quinn calls that a mandate to increase Illinois income tax rate by 1% (from 3% to 4%). We’ll see if the state legislature in Springfield agrees with Mr. Quinn or not. One way or another, it’s a mess in Illinois.

You may have noticed that its the “Blue” states which seem to have the biggest problems with state budgets. This includes high tax California and low tax Illinois. Perhaps both states are spending beyond their means though I suspect the public employee unions think that the spending is nowhere near their needs.

In October I noted that Michael Wellek, the owner of three strip clubs in the Chicago area, would soon plead guilty to tax evasion. He did so last week.

Mr. Wellek admitted he didn’t file a tax return for years where he made more than $2 million. Of course, he made that in cash, and we all know that cash isn’t taxable unless you get caught, right? Well, no, all income is taxable, even cash.

Mr. Wellek also admitted he paid $2.3 million in cash to employees of his strip clubs and didn’t issue reports (either 1099s or W-2s). The report notes that Mr. Wellek plans on cooperating with the IRS. If you were one of his employees, I hope you included that cash on your tax return or you might be getting a knock on your door from the IRS.

California certainly has a budget crisis. But it’s nothing compared to the crisis in Illinois, where the Land of Lincoln is a reported $4.3 billion behind in paying the bills. Meanwhile, the Libertyville Drivers Services Facility office may be closed permanently for failure to pay their bills.

Stephen Martin, whose family owns the Brookside shopping center on the 300 block of Peterson Road that houses the Secretary of State office, has sent a letter to state officials saying he wishes to terminate the lease agreement because of the long-overdue payments. Martin said the state owes him nearly $43,000 in back rent and expenses.

The news article in the Daily Herald notes that several state legislators’ officers were being closed for failure to pay the bills.

When I saw this story, I immediately thought of this:

It will be interesting to see how this turns out.

The Tax Foundation noted last week that several states will be delaying income tax refunds. Hawaii won’t be sending out refunds until July 1st; North Carolina will send them out “when they feel like it,” and New York Governor David Paterson wants to delay refunds for those who file in March. Meanwhile, Illinois is simply not paying its debts.

Meanwhile, it’s almost a certainty that California will be joining this list. Barring a miracle in the Legislature (the Democrats and Republicans and Governor Schwarzenegger coming to an agreement in the next few weeks), registered warrants (aka IOUs) will have to be sent out beginning in late March or early April. Controller John Chiang implied this when he said the state was running out of cash. Meanwhile, the Democrats in the legislature continue to pass big ticket programs (e.g. healthcare legislation) so it’s as if they’re living in dreamland.

I’m a native of Illinois, and most of my relatives still reside there. Unfortunately, the home of the Cubs is having a multitude of tax troubles.

First, unemployment in the state is now over 11 percent (11.1% to be exact). Fewer people working leads to less tax collected.

Second, Illinois has changed how property taxes are collected. The first installment is due on March 2, but it’s not 50% of the tax. It’s now 55% of the tax (with 45% due late in 2010) thanks to a change in Illinois law. It’s a way for local government to make money off of our money instead of us having it to live off of.

Of course, politicians in Illinois are scrupulously honest, forthright, and have never ever been known to lie, cheat, or steal, right? Oh yes, the trial of disgraced former governor Rod Blagojevich will be late this summer.

It’s rare these days to read about any tax rate dropping. County Commissioners in Cook County, Illinois, home of Chicago and some of the metropolis’ suburbs, voted earlier this year to cut the county’s sales tax rate by 0.5%. Cook County Board President Todd Stroger vetoed the rollback. Yesterday, the veto was overridden. On July 1, 2010, the sales tax rate will fall. For Chicago, this means that the sales tax rate will fall from 10.25% to 9.75%.

“Some people will die needlessly for lack of access to the health care our system provides today,” Stroger said to the Chicago Sun-Times.

Two other politicians have clearer heads about the matter. Republican County Commissioner Timothy Schneider called it “…a $195 million rebate to the people of this county.” Democratic County Commissioner Forrest Claypool noted that it was part of a voter revolt. He told the Sun-Times, “What people see … is a county government that is too often a friends and family plan, a jobs machine for the politically connected.”

Politicians everywhere need to realize that there’s no such thing as government’s money. All of the money to fund government comes from the people. Commissioner Claypool noted that there’s no reason why government can’t be run more efficiently. He’s right. When times are tough government needs to cut back. Finally, Mr. Stroger’s comments about lives being lost is fatuous. Union employees will have to make do with either a smaller raise or perhaps the same salaries or even cuts. After all, that’s what we the people are having to do during the recession.

Christopher Kelly, a fundraiser for disgraced Illinois Governor Rod Blagojevich, died on Saturday in Chicago. Mr. Kelly late last year pleaded guilty to tax fraud charges related to gambling debts. Last week he also pleaded guilty to fraud against United Airlines and American Airlines related to work on hangers at O’Hare International Airport in Chicago. None of the pleas required Mr. Kelly to testify against Mr. Blagojevich so the federal prosecution of the former governor should not be impacted.

My condolences to Mr. Kelly’s family.

Rocky Wirtz is a folk hero among Chicago’s long-suffering hockey fans. After his father, William (Bill) Wirtz, passed away in 2007, he changed the Blackhawks’ philosophy. Suddenly, the laughable losers turned into winners, and the Blackhawks played in the Western Conference Finals last year.

Mr. Wirtz also owns a liquor distributorship in Chicago. It’s not a little business–it’s a $1.5 billion company. And so when Illinois lawmakers decided to balance its budget partially by hiking liquor taxes, he was annoyed. Well, more than annoyed. He’s challenging the liquor tax hike on grounds that it violates the state’s constitution by covering disparate subjects.

Mr. Wirtz is also challenging Illinois’ new video poker law. In theory, come mid-September there should be video poker terminals in bars and taverns throughout Illinois. Hogwash, says Aaron Jaffe, chair of the Illinois Gaming Board. While the state legislature approved the video poker terminals, they didn’t fund any of the needed personnel or the $75 million needed to just implement the program. So if there’s no court order stopping the program it’s likely that video poker is still months away.

But Mr. Wirtz is challenging the gaming expansion, too. He claims that the expansion violates federal gambling law. Mr. Wirtz’s attorney is asking for an immediate injunction.

Meanwhile, the AFSCME has filed a lawsuit to stop Illinois from laying off 2,600 state workers. The union argues that under their collective bargaining agreement, layoffs must be negotiated.

One thing is certain: Expect lots more labor unrest as state budgets shrink. That’s a conclusion that everyone involved can agree with.

Former Chicago Alderman Arenda Troutman was sentenced to four years at ClubFed last week. Ms. Troutman had started the 20th Ward Women’s Auxiliary to hide money. At sentencing, Ms. Troutman told Judge Ruben Castillo, “With God as my witness I am not a monster.”

A monster, no, but a tax evader she was. The judge noted that Ms. Troutman likely associated with gang members and sentenced her to four years at ClubFed.