CHICAGO — A battle has erupted in Illinois over taxing corporations, pitting many labor, health care, and community organizations and small business owners against some of the nation’s largest companies.

In introducing his state budget proposal, Gov. Rod Blagojevich unveiled a “Tax Fairness Plan” to address one of the nation’s most regressive tax systems. It would impose a Gross Receipts Tax (GRT) on corporations to the tune of $7.6 billion a year.

The GRT revenues would fund the state’s “Coverall” Health care program targeting the 1.4 million uninsured adults and over 300,000 uninsured children. It would increase public education funding by $1.5 billion the first year and $10 billion over four years, raising the base allocation per student. It also adds $50 million in new higher education spending.

Another element of the governor’s budget addresses the crisis in the state pension system which has unfunded liabilities totaling $40 billion, the largest in the country. The plan calls for selling $16 billion in pension obligation bonds combined with long term leasing of the state lottery, reducing the liability to $15 billion.

The big corporations and their media mouthpieces are enraged because Blagojevich has broken the taboo against taxing corporations. Big business is pouring millions into defeating it, feigning concern that working people will foot the bill for any tax hike.

“For too long, some of the wealthiest corporations in our state have paid little or no state income taxes while working families have paid more and more. Now we have the unique opportunity to make a fundamental change that will ensure that everyone pays their fair share,” Blagojevich said.

For example, 12,521 of the biggest corporations with sales of over $263 billion in Illinois paid on average $151 in corporate income taxes, one-tenth what the average taxpayer forks over. From 1997 to 2004, 48 percent of corporations with annual sales in Illinois of $50 million or more paid zero corporate income taxes.

The GRT is a flat tax on all transactions of manufactured goods and services by business. It is utilized in Delaware, Hawaii, Washington, Texas and Ohio and would replace the corporate state income tax, presently full of loopholes.

According to Blagojevich, the GRT would exempt businesses with under $2 million in revenue — 85 percent of corporations. However, there is serious concern by many small corporations with marginal operations that they would be put out of business.

The bill contains exemptions for insurance, food and drugs, Medicaid payments and not-for profit agencies. However, it also exempts taxes on securities and commodities trading, which could bring in billions more.

Many supporters believe the governor’s plan, although it doesn’t go far enough, is a bold proposal that solves the daunting fiscal crises faced by the state. While there is growing consensus among labor and its allies over the issues prioritized by Blagojevich, there is not agreement on the governor’s plan. Forces that normally line up on the same side are now fragmented or on opposite sides. Some oppose leasing the state lottery.

Margaret Blackshere, former president of the Illinois AFL-CIO, heads up the campaign for the plan’s passage. It has received support from nearly 200 health care, education, business, religious, government and labor unions including Illinois Education Association, Illinois Federation of Teachers, Chicago Federation of Teachers, Service Employees International Union, American Federation of State County and Municipal Employees, Laborers International, Campaign for Better Healthcare, Planned Parenthood, Black Chamber of Commerce and Hispanic Chamber of Commerce. Blagojevich won the support of State Senate President Emile Jones by increasing the GRT and offering $1 billion in targeted property tax relief.

Republicans uniformly oppose the plan, while some leading Democrats are either opposed or silent. Several members of Blagojevich’s own cabinet are vocal opponents of the GRT.

The Rev. Jesse Jackson recently announced his opposition to the GRT, speaking on behalf of the Alliance of Black Leaders and Entrepreneurs. They feel it will hurt small businesses.

Also in the mix is HB 750, introduced by state Sen. James Meeks and backed by Democratic House Speaker Michael Madigan and many education advocacy groups. It would increase funding to education by hiking income and corporate taxes and expanding the sales tax, while reducing property taxes. Some view it as a regressive tax that won’t close corporate tax loopholes.

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