Business Costs for Illinois Manufacturers to Increase, Thanks to State Congress

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When you’re between a rock and a hard place in need of cutting costs while maintaining profit what do you do? An even better question might be: what does a state legislature do?

Turns out, in the case of Illinois 48th place among all states in job creation and No. 1 in budget deficit and state debt you raise taxes without cutting spending.

Spend Matters, our sister site, has written a couple incisive posts check them out here and here detailing the shortcomings of the legislature’s previous plans. Here’s a taste:

“If Governor Quinn really wants to “build [a] framework that will allow the state to pay its bills, stabilize the budget and strengthen the Illinois economy,” how about (gasp) cutting pensions, ridding ourselves of ridiculous union agreements (including our Governor’s agreement to not lay off workers) and reducing the overall size of the bloated state workforce by 25% as a start?

Socking it to small Illinois businesses, like ours, which will certainly factor higher taxes into proposed growth plans, will cause further economic hardship and delayed hiring, even before the so-called recovery ramps into gear.

(Speaking to the aforementioned “ridiculous union agreements is an excellent article in the Jan. 8 issue of the Economist, titled (Government) workers of the world unite, that shows the gross imbalance between public and private unions.)

The fact is that Illinois’ financial predicament is just as prickly as the potential solutions. According to which data you choose, the state is running a $13 to $15 billion budget deficit, and has $8 billion worth in unpaid bills to schools and hospitals. Now that the House and Senate ended up passing a tax hike increases of 66 percent in income tax and 47 percent in corporate tax let’s take a look at how the media is treating this massive legislative decision.

Both the Chicago Sun-Times and Tribune displayed varying levels of disdain for the bill. The Sun-Times surprisingly hailed the decision as a necessary one, although warily. The Tribune flat out excoriated the legislature, and both papers called out the failure to cut spending.

“Cutting overhead would offend their friends in the public employee unions and other pet constituencies. Ask retired state workers to pay something for their health care? Cap employee pensions? Perish the thought, the Tribune‘s editorial states. “So ” get this ” not only are they raising taxes to avoid budget cuts, they’re including a provision to let their spending continue to rise ” year after year.

The Sun-Times echoes the sentiment: “Republicans pointed out that Democrats started by building in a spending base that’s actually 10 percent greater than what the state spent this year as it delayed paying bills to forestall the looming crisis, writes Mark Brown.

Illinois and Chicago manufacturers see no redeeming qualities to the increases. “Greg Baise, president & CEO of the Illinois Manufacturers Association, led the opposition testimony against the tax hike in committee noting that this legislation will drive another nail in the coffin of manufacturing which has seen the loss of 300,000 jobs in the past decade by significantly increasing the cost of doing business in this state, according to a statement on the association’s website.

Another big blow to manufacturers and other businesses in this bill: the suspension of net operating loss provisions for the next four years. Whereas before, companies could spread net loss forward, mitigating the damage to their bottom line, this move results in “a double whammy” for recession-hit firms, the IMA said.

The main question for manufacturers now, as Monica Davey, the New York Times‘ one-person Chicago bureau, puts it, is “Will Illinois businesses really now flock to neighbors Wisconsin and Indiana as opponents have suggested?

If you’re a manufacturer in Illinois, or do significant business there, how will this affect your business practices? Let us know post a comment!

–Taras Berezowsky

Join us for a free webinar on steel price trends and outlook for 2011 along with guest speaker Metalwest, where we’ll discuss how OEMs can improve profitability through lean metal supplier programs.

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