Archive for the ‘Illinois’ Category

What Happens When Cigarette Taxes go Through the Roof?

Sunday, December 16th, 2012

While Alan Greenspan noted, “Whatever you tax, you get less of,” the New York legislature seems to not understand. In one of the least shocking reports I’ve seen, the New York Association of Convenience Stores (NYACS) noted that the state is losing $1.7 billion of tax revenue each year and 6,700 jobs because of cigarette tax evasion. Why would this be?

New Yorkers who can buy cigarettes elsewhere. The study found that many are buying cigarettes from surrounding states, military bases, Indian reservations, and duty free shops. Add in smuggling from low-tax states (there’s undoubtedly a black market) and you have tax avoidance.

Meanwhile, Cook County, Illinois (Chicago) is conducting cigarette raids to enforce the $2 county cigarette tax. A picture is coming into my mind, that of prohibition, where organized crime prospered when alcohol was banned. I’m sure the similarities are just superficial…or maybe they’re not.

Of course, the NYACS would like New York to begin raids like those in Chicago; after all, convenience stores that are obeying the law stand to sell more cigarettes than most other locations. Still, the unintended consequences of increased taxes are obvious to most of us.

Squeezy and Illinois

Monday, November 19th, 2012

Sometimes you can’t make this stuff up. The video (below) is a real video from Governor Quinn of Illinois:

Governor Quinn gives an excellent history of pensions but I notice there’s something missing from the video: solutions. Perhaps it’s because Illinois legislators and Governor Quinn promised that the 66% tax increase of 2011 would solve the problem. It didn’t. Illinois had $8 billion of unpaid bills when the tax increase was passed; there are $8 billion of unpaid bills today. Pensions ate up the tax increase.

There’s an editorial in the Chicago Tribune that notes that some Illinois legislators want to borrow money to pay for pensions. That’s a great solution: Let’s eliminate one debt problem by substituting another debt problem!

There is only one solution: Fundamental reform of the pension system. It’s going to be politically ugly: Democrats’ major interest group, public employee unions, will not like the results (pensions will be cut; that’s the only way out of the problem). Governor Quinn likens pensions to promises, and that they can’t be changed. Here’s a helpful hint to Illinois politicians: The taxpayers and companies that are resident in your state can leave to a far more friendly tax location. Sure, your income taxes aren’t that high (yet), but you’re sure heading in the wrong direction. If I were an executive with an Illinois-based business, I would be looking at other states. As I noted yesterday, moving a business is disruptive. Unfortunately, if you’re on a ship that’s struck an iceberg it’s time to head to the lifeboats. Illinois struck an iceberg called pensions. There’s still time to fix the hole but it’s now a more than $90 billion problem.

Chicago is a great city, and Illinois was a great place for my childhood. However, there are fifty states in the United States and Illinois appears to be following California into a cycle that will cause businesses that can leave to leave and for taxpayers to be caught in a cycle of ever-increasing taxes.

Bad States for Gamblers

Monday, October 22nd, 2012

It’s been a while since I’ve listed out the bad states for gamblers. Here’s an updated list. Make sure you read the notes because while all of these states have tax systems that are problematic for gamblers, some impact amateurs while others impact professionals. Note that I do not cover the laws that impact gambling here (such as Washington State’s law that makes online gambling a Class C felony).

Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
Ohio [6]
Washington [7]
West Virginia [1]
Wisconsin [1]

NOTES:

1. CT, IL, IN, MA, MI, WV, and WI do not allow gambling losses as an itemized deduction. These states’ income taxes are written so that taxpayers pay based (generally) on their federal Adjusted Gross Income (AGI). AGI includes gambling winnings but does not include gambling losses. Thus, a taxpayer who has (say) $100,000 of gambling winnings and $100,000 of gambling losses will owe state income tax on the phantom gambling winnings. (Michigan does exempt the first $300 of gambling winnings from state income tax.)

2. Hawaii has an excise tax (the General Excise and Use Tax) that’s thought of as a sales tax. It is, but it is also a tax on various professions. A professional gambler is subject to this 4% tax (an amateur gambler is not).

3. Minnesota’s state Alternative Minimum Tax (AMT) negatively impacts amateur gamblers. Because of the design of the Minnesota AMT, amateur gamblers with significant losses effectively cannot deduct those losses.

4. Mississippi only allows Mississippi gambling losses as an itemized deduction.

5. New York has a limitation on itemized deductions. If your AGI is over $500,000, you lose 50% of your itemized deductions (including gambling losses). You begin to lose itemized deductions at an AGI of $100,000.

6. Ohio currently does not allow gambling losses as an itemized deduction. However, effective January 1, 2013, gambling losses will be allowed as a deduction on state income tax returns. Unfortunately, those gambling losses will not be deductible on city or school district income tax returns, so Ohio will remain a bad state for amateur gamblers.

7. Washington state has no state income tax. However, the state does have a Business & Occupations Tax (B&O Tax). The B&O Tax has not been applied toward professional gamblers, but my reading of the law says that it could be at any time.

Illinois Debt Downgraded

Thursday, August 30th, 2012

S&P cut the rating of Illinois debt by one level yesterday. From the news story:

“The downgrade reflects the state’s weak pension funding levels and lack of action on reform measures intended to improve funding levels and diminish cost pressures associated with annual contributions,” said Robin Prunty, an S&P analyst, in a report today.

Illinois has at least an $83 billion unfunded pension problem. The state is months late in paying its bills. It raised its income tax by 67% last year…and the state continues to spend money like its going out of style.

Governor Quinn says he’d welcome the state legislature to work together on solutions. The problem is that the real solutions involve cutting spending and pension benefits, and that’s anathema for Democrats. The problem is that the other “solution,” raising taxes, was tried and the results were more of the same.

Illinois Casino Expansion Bill Vetoed

Tuesday, August 28th, 2012

Governor Pat Quinn (D) vetoed a casino expansion bill that would have added five casinos, including one in Chicago. His veto message stated that the biggest problem with the bill, “[I]s the absence of strict ethical standards and comprehensive regulatory oversight. Illinois should never settle for a gaming bill that includes loopholes for mobsters.” Governor Quinn promised a veto of a similar bill in 2011; that bill did not pass the Illinois legislature.

Illinois is still facing a massive budget deficit (the state is months behind in paying its bills), so casinos were one of the means that some legislators were looking at for balancing the budget.

An override in Illinois takes a 3/5 vote of both houses of the state legislature. There will be a lame duck session of the Illinois legislature following the November election.

Illinois Adopts Strip Club Tax

Sunday, August 19th, 2012

Back in May I posted about Illinois’ proposed strip club tax. We can now remove ‘proposed’ as the tax was signed into law; the tax goes into effect on January 1st.

The tax of $3 per patron will go to support Illinois’ 33 rape crisis centers. I’m not opposed to funding of rape crisis centers (on the contrary, they’re necessary). What I don’t like at all are “sin” taxes — taxing activities that legislators don’t like. All taxes are passed onto consumers — all of them. While the goal of this tax is quite laudable, it will likely cut patronage. As Alan Greenspan said, “Whatever you tax, you get less of.”

What Raising Taxes Accomplishes

Sunday, August 12th, 2012

I grew up just outside of Chicago in Lincolnwood, Illinois. Last year the Land of Lincoln passed a huge tax increase. Personal income taxes increased by 66% (from a 3% rate to 5%); the corporate tax rate was also dramatically raised. Did the extra $7 billion fix the problems?

No.

The budget deficit increased to $5 billion from $4.6 billion, and over $8.3 billion of bills haven’t been paid. Why didn’t increasing the tax rate fix the problem? Because the big issue is the spending of money, not the revenues to the state.

Illinois pension costs are mammoth, but pension are sacrosanct to Democrats in Illinois’ legislature. Bluntly, pensions in Illinois and elsewhere are going to have to be cut; there just isn’t the money to pay for them. And things will likely continue to worsen until the actual cause of the problem is addressed.

Illinois isn’t the only state facing these issues. In Hermosa Beach, California (near Los Angeles) meter maids make nearly $100,000 a year. The chief of police doesn’t want to privatize the service because, “When you outsource, you take away union jobs.” Perhaps Hermosa Beach wants to join Stockton, Mammoth Lakes, and San Bernardino in Chapter 9.

Meanwhile, a committee in the California Assembly approved $100 million for film credits. California voters may wish to remember this when they vote on Governor Brown’s tax increases this fall. (For the record, the film credit passed unanimously. The measure still must pass the full Assembly and the State Senate.)

If you’re a resident of California or Illinois let your elected officials know what you think about this. And if you don’t like the answers you receive, remember that there’s an election in less than three months. It’s the only way that change is going to happen.

I’m Shocked! A Strip Club Owner Is “Appalled” by Proposed Strip Club Tax

Sunday, May 20th, 2012

Illinois is debating a tax on strip clubs. I’m shocked, just shocked to find that Al Zuccarini, owner of Big Al’s in Peoria (an adult entertainment facility–a strip club) opposes a proposed tax on strip clubs. First, we honor Mr. Zuccarini with the Captain Louis Renault Award:

Seriously, Mr. Zuccarini has a point. The tax (now down to $3 per customer from the originally proposed $5) is supposed to fund rape crisis centers in Illinois. Mr. Zuccarini told the Peoria Journal-Star,

“My counterparts (other club owners) might think the reduction is a win,” he said. “I don’t think it’s a win. If it’s $25,000 one year, what’s it going to be next year when money is short – $40,000? Where does it stop?”

That is a good point. Excessive taxing of small businesses is a huge hindrance to job growth. Perhaps Illinois should study the example of what’s happened in California. Then again, maybe that’s exactly what Illinois is doing.

A Poll Tax–No, That’s a Pole Tax in Illinois?

Thursday, February 16th, 2012

Leave it to the Land of Lincoln for an inventive way to raise money. Illiniois State Senator Toi Hutchinson (D-Olympia Fields) is sponsoring a $5 per person pole tax. The tax would impact strip clubs. The strip clubs are not amused. The Chicago Tribune reports:

We wouldn’t want that,” said Tiffany Winkler, manager of the Chicago club Pink Monkey.

The Admiral Theatre is “strongly opposed to the proposed pole tax,” said Sam Cecola, the North Side club’s director of operations.

I remember that Texas implemented a similar pole tax; the Texas Supreme Court ruled it constitutional though the case is still being litigated. Expect a similar battle if Illinois moves toward a pole tax.

Illinois: Proving Laffer Correct

Sunday, January 22nd, 2012

Arthur Laffer popularized the Laffer curve. The father of Supply Side Economics noted that in many cases, increasing the tax rate decreases the amount of tax revenues. It appears that Illinois is proving Dr. Laffer correct.

Moody’s just downgraded Illinois’ bond rating to A2 from A1. Illinois now has the worst rating of all 50 states–even worse than California. But wait: Didn’t Illinois pass a massive tax increase a year ago? Wasn’t that supposed to help Illinois’ financial condition? Here’s how the Wall Street Journal put it:

So much for that. In its downgrade statement, Moody’s panned Illinois lawmakers for “a legislative session in which the state took no steps to implement lasting solutions to its severe pension underfunding or to its chronic bill payment delays.” An analysis by Bloomberg finds that the assets in the pension fund will only cover “45% of projected liabilities, the least of any state.” And—no surprise—in part because the tax increases have caused companies to leave Illinois, the state budget office confesses that as of this month the state still has $6.8 billion in unpaid bills and unaddressed obligations.

There is some good news for Illinois. Governor Jerry Brown and other California Democrats are proposing a variety of tax increases for the Bronze Golden State (to be voted on in this fall’s election). It may well be that California will pass Illinois to the #1 spot.

Hat Tip: HotAir