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Cost of Tax Breaks Could Hit $850 Million

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    NEWSLETTERS

    A package of tax breaks aimed at helping business and keeping a few high-profile companies from leaving Illinois could cost the government $850 million a year in its current form, raising the possibility that it will have to be scaled back to win approval from the Legislature.

    The package started as a move to lower the tax bill for two Chicago-based financial exchanges, CME Group Inc. and CBOE Holdings Inc., which are threatening to leave Illinois. Then a tax break for Sears was added to the mix. That was followed by tax incentives for businesses in general, and then measures to help poor families.

    Each new tax break means less money to run state government, requiring officials to get more money elsewhere or cut services.

    The full cost of the package would hit state government in in fiscal 2014, just before the state's temporary income tax increase expires.

    "A lot of bad things happen in 2014, a lot of difficult things," said Rep. Frank Mautino, a Democratic leader on budget issues.

    Gov. Pat Quinn's administration calculates that the tax package would generate an additional $520 million in its first year. Then it would cut revenue about $200 million the second year. If the tax package were passed in its current form, the cost would soar in the third year to about $850 million annually.

    State government would have to absorb most of that loss, but 6 percent — or about $50 million — would hit the budgets of local governments across Illinois.

    Top officials would say little Thursday about the potential cost.

    A spokeswoman for the Democratic governor stressed that the proposal is far from final, but that Quinn definitely wants to pass something when lawmakers return to Springfield on Nov. 29. He is "very committed and very interested in getting something achieved to help the business climate and also help working families," said spokeswoman Brooke Anderson.

    Republican legislative leaders had pushed to expand the tax package so that it helped businesses in general, not just select companies that made threats. They would not discuss whether $850 million would be an acceptable cost.

    "There is no agreement on a plan or proposal, therefore no cost estimate at this time," said Sara Wojcicki Jimenez, a spokeswoman for House GOP Leader Tom Cross of Oswego.

    "It's all a work in progress," said Patty Schuh, a spokeswoman for the Senate's top Republican, Christine Radogno of Lemont.

    Senate President John Cullerton, D-Chicago, sponsored a version of the tax incentives that was approved in committee.

    "The cost is always a concern," said Cullerton spokesman John Patterson. "The Senate president has made it a priority to find a way to make this revenue neutral and is open to suggestions from the other caucuses."

    House Democrats have expressed the most skepticism toward the proposal.

    "We're starting from scratch. We're taking all these proposals and ideas, taking them apart, analyzing them, and then trying to put back together what works," said Rep. John Bradley, a Marion Democrat who chairs the House Revenue Committee.

    The push for tax breaks began with the two trading firms, who run the Chicago Mercantile Exchange and the Chicago Board Options Exchange, complaining that they are taxed on every transaction they handle, even electronic trades where the buyer and seller are not located in Illinois.

    Officials are now looking at the possibility of taxing the exchanges on only 27.54 percent of their business. That would reduce government revenues by $85 million a year, according to the state Revenue Department.

    Ten years of tax breaks to keep Sears Holdings Corp. from leaving Illinois would cost an additional $15 million annually.

    General breaks available to all businesses, such as a research-and-development credit or lowering the fee for incorporating, would cost nearly $340 million a year. Republicans say all businesses need some relief from the income tax increase pushed through by Democrats early this year.

    The proposal, at least as it stands, also includes provisions to help the working poor. The earned-income tax credit would be expanded, costing $90 million the first year and $180 million a year after that. The personal income tax exemption would be linked to inflation, costing about $20 million more each year.

    Initially, these costs would be offset by "decoupling" from a federal tax incentive for business, one that lets them speed depreciation claims on their equipment. Doing away with that is why the tax package could potentially be a net gain for the state in its first year. But the benefits of that change fade and then disappear entirely, leaving only the loss of tax revenue for state and local government.