More Problems with the Governor Budget

Governor Blagojevich’s budget proposal contains massive increases in spending in almost every area, many of them not need, expect for one, improvement of the states capital infrastructure. This is one area that the State legimately needs to spend more money on. Building and maintaining a solid transportation infrastructure is one of the most important things the state can do in order to promote a healthy economy and attract businesses to the state, the problems with and condition of the states highway, roads and other infrastructure has been responsible for a car company choosing not to locate a new plan in Illinois. A good transportation infrastructure makes it easier, cheaper and quicker for companies to bring in supplies and ship out their products and this makes sites with access to good transportation infrastructure more competitive when it comes to attracting business. It also helps the economy by making it easier for the general public to travel in order to commute to work or shop. Instead of increasing spending on all these unnecessary programs, the state’s new budget should cut back on spending on unnecessary programs and projects, full fund the pension system while shifting new employees from a defined benefits plan to a defined contribution plan, move the states Medicaid programs to a manage system and then use those saving to increase spending on capital improvement projects and education.

Today Bruce Braker the President of the Tooling and Manufacturing Association release a good little chart that shows how the Gross Receipts Tax would be pyramid and the amount of tax that is paid on each good would be far high than the statutory rate.

“Here is an example of pyramiding in the manufacturing process, assuming the Legislature enacts the 0.5 percent tax suggested by Blagojevich:

“Basic industry” sells $200 worth of raw materials to a “parts fabricator”: $1 tax.

“Parts fabricator” adds value and sells $400 product to “manufacturer”: $2 tax.

“Manufacturer” adds value and sells $800 product to an “integrator”: $4 tax.

“Integrator” adds value and sells $1000 product to a “wholesaler”: $5 tax.

“Wholesaler” adds value and sells $1,200 product to a “retailer”: $6 tax.

“Retailer” adds value and sells $1,600 product to “consumer”: $8 tax.

In this example, $26 in taxes was paid on a single product that was sold to the final consumer for $1,600. Thus, the effective tax rate was 1.7 percent, or more than 300 percent higher than the rate suggested by the governor.”

What this chart leaves out is that most of this tax will ended up embedded in the final price of the good and paid for by the consumer. While 1.7 percent might seem small, remember this will be placed on every good and service that is produced in the state and the consumer will see the price of everything they buy rise.