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Proposed 'privilege' tax on capital gains called 'jobs killer' by lawmaker

Illinois Watchdog.Org

Thursday, February 8, 2018  |  Article  |  By Cole Lauterbach

Financial Institutions (7) , Taxes, income (86) , Technology (98) McSweeney, David--State House, 52 , Welch, Emanuel "Chris"--State House, 7
Illinois lawmakers are again trying to tax the state's financial advisors for the “privilege” of doing business here.

In 2017, state Rep. Chris Welch, D-Westchester, sponsored a bill that would have imposed a 20 percent tax on financial services rendered in the state. He said it was to make up the difference in the controversial “capital gains” tax break given by the federal government.

“Wealthy people should pay their fair share,” he told the House Revenue and Finance Committee last March.

The bill's language was crafted by a group called Grassroots Collaborative, whose member organizations include the Service Employees International Union, Healthcare Illinois-Indiana and the Chicago Teachers' Union Local 1. One of their representatives testified on behalf of the bill in 2017.

Private investment funds use money invested by pension and retirement funds and other sources to buy companies, improve them, and then sell them for a profit. The dividends on those profits are distributed to partners and shareholders of the company. That money is taxed at a 23 percent capital gains rate instead of the top personal federal income rate. Welch's bill was intended to make up that difference and put it all in the state's coffers.

It came close to Gov. Bruce Rauner’s desk, having passed the Senate along party lines and requiring only a House vote before it was stalled due to lack of support. The 2017 iteration was estimated to gain the state $206 million, but didn’t say how much thereafter because of concerns that the industry would avoid the tax. The fiscal note has since been removed.

Fast forward a year, Welch has introduced an identical bill that was assigned to a committee Monday. He would not respond to requests for comment.

State Rep. David McSweeney, R-Barrington Hills, said the financial industry is only bound here by computer servers that could be easily moved, thus costing the state revenue and jobs.

“This is the Job-Killer Act of 2018,” he said. “There’s absolutely no possibility that companies would stay in the state. They could easily be moved to New York, to Tennessee or Florida.”

The 2017 bill was criticized as a political stunt to force Gov. Bruce Rauner to veto a bill that would have directly affected him, since he still holds interests in the financial industry. McSweeney is a financial expert but says he wouldn’t be personally affected by the tax.

It gained national attention, being criticized in opinion pieces published by Forbes and the Wall Street Journal.