Fritz Pfister

On Wednesday the 18th of April the Illinois Chamber of Commerce organized a rally at the state capital to protest the governor’s gross receipts tax (GRT) proposal. The new tax would fund health insurance for all Illinois citizens, and increase education spending.

The following day on AM970 WMAY in Springfield the governor’s representative, Becky Carroll, responded to the protest on Jim Leach’s morning show, by summarily dismissing the protest as organized by big corporations. She stated that the Chamber of Commerce was misleading its very own members, small business owners, because the GRT would not affect 85% of businesses in Illinois. Ms. Carroll also claimed that the GRT would save Illinois businesses money through reduced health care/coverage costs, and that businesses would not pass along the cost of the tax through higher prices, because the market sets prices.

Did you see the story out of Florida this weekend where fisherman caught an over 1000 pound shark, which is believed to be a world record? Ms. Carroll’s claims are bigger whoppers.

Of the over 600 business owners that attended the rally against the GRT, here is what a few had to say.

A woman who owns a family business on the Wisconsin border says if the GRT passes she will move her business and 15 employees to Wisconsin. Why? The tax would be greater than her profits.

The owner of a small feed manufacturing company, and grain elevator from western Illinois says, based upon last years receipts and profits, the GRT would have been 170% higher than his profit. If the GRT passes he will be forced to close his business. He said he was in Springfield to ask his state senator if he would explain to his 25 jobless employees how fair the GRT was to them.

The owner of a beauty salon in Springfield says that the GRT will take 36% of his profits, and will have to raise prices to survive. He is skeptical his customers would pay higher prices. His family owned business has been in Springfield since the 1930’s, and that the GRT presents the biggest challenge to survival in company history, even greater than the depression. The salon has several dozen employees.

The owner of a local appliance sales and service business says he will be forced to freeze wages, cut benefits, and possibly lay off employees because the GRT would take half his profits. He is skeptical about layoffs because that would harm his service business. He would most likely have to pass along the cost through higher prices.

A local grain elevator operator from Pleasant Plains said the GRT would have caused his business to lose over $400,000 in 2006. There is no way he could pass along that amount to local farmers. He and over two dozen employees would be out of jobs.

There were hundreds more stories like these being shared at the rally. I didn’t meet anyone from State Farm, Caterpillar, John Deere, Allstate, or any other fortune 500 company the governor claims will be the only businesses affected. I met dozens of small business owners personally, and heard other small business owners speak. Seems none of these small business owners agree with Ms. Carroll or the governor. They all fear for the survival of their small business.

Unless you consider these business owners fortune 500 companies, then Ms. Carroll is either misinformed, or deliberately misleading, when she states 85% of businesses won’t be affected by the GRT.

An economist from Emory University, Professor Kenneth Thorpe claims in a study that the largest tax increase in history will save Illinois tax payers money by reducing the cost of health care/insurance by 15 billion dollars in the next four years. Did the professor calculate the rise in the cost of living to all Illinois citizens the GRT will create? The 6 to 10% increase in the cost of goods as reported in a study from the Farm Bureau? The 10 cent per gallon increase in the price of gas caused by the GRT according to the Petroleum Producers? Or perhaps the Professor can accurately arrive at his conclusion by deducting the tens of thousands of people that will leave Illinois, because their businesses closed or left the state?

This is such a patently flimsy argument by the Professor and Ms. Carroll that it is no wonder 76% of Americans no longer trust their government officials. The Professor should have said “I based my model upon the theory of saving money through spending money because it was on sale model.” That would ring more true than the poppycock the Professor and governor are trying to feed the people of Illinois. Has the Professor ever owned and operated a business in the real world, outside academia?

The final claim by Ms. Carroll was that businesses would not pass along the cost of the GRT to consumers because markets sets prices. She is right to a degree on this count. The small family farmer who will pay more for fertilizer, equipment, fuel, seed, and herbicide/pesticide won’t be able to raise his prices; the commodity market sets the price. The small mom and pop retailer with a Walmart down the road won’t be able to raise prices either. They will simply close. The government will have put them out of business this time rather than Walmart.

Businesses in the real world that get slapped with seven point eight billion dollars in new taxes will have to come up with the money somewhere. Their choices are simple; 1. pass along the cost to their customers 2. cut expenses (employees are the greatest expense) 3. a combination of passing along the cost, and cutting expenses 4. go out of business 5. leave the state.

The businesses that don’t close or leave the state, will pass along as much of the cost of the GRT as the market will bear. The result of passing the GRT would then be tens of thousands of jobs lost, higher prices on everything for everyone, and the most anti-business tax laws in America which would devastate new business development.

A representative from H.D. Smith Wholesalers in Springfield announced at the press conference; “Just as we prepare a major expansion in Springfield creating 600 jobs, we learn of a GRT that would consume 100% of our Illinois profit”.

A franchise owner from Oklahoma with sixteen franchisees in Illinois said; “Illinois has now surpassed California as the worst state in America to do Business”. That sounds good for new business development.

If Ms. Carroll is correct that businesses won’t pass along this added cost to consumers, why is there language in Senate Bill 1, according to Chamber of Commerce representatives, that prohibits businesses from referring to the GRT on billings, invoices, and receipts? Sounds like the Governor doesn’t want consumers to know who is really paying this new tax. Additional evidence of misrepresenting facts by the governor. Sounds great, only ‘Big Business’ will be affected, when the reality is that this is nothing more than a tax on the people of Illinois.

The Illinois Association of Realtors report the GRT will add 2.84% to the cost for builders of new homes. In Springfield the GRT will increase the cost of a new $300,000 home by over $8,000.

If the GRT passes then there would be weaker demand and greater supply within the housing market. Combine this with diminished purchasing power due to higher prices, as the cost of the tax impacts all goods and services in Illinois, and you will see existing home prices decline. How much no one knows, however in certain markets in 2006 within Illinois, prices fell double digits due to a market correction caused by an imbalance in supply and demand. How much will this self imposed market correction drop home values? In my opinion 5% to 25% dependant upon location. It could be more.

This will place home builders in a very precarious position. The GRT will drive up the cost of their product just as the GRT drives down the value of existing homes. The dollar spread between new and existing homes will drive consumers out of the new home market.

Housing is the backbone of any economy, the GRT will break that backbone.

Please pass along this blog to your friends. Please ask them to contact their legislators to defeat the Gross Receipts Tax in any form it is proposed, changed or altered to. Any form of a GRT will devastate the Illinois economy. Health care and education funding must be addressed, however the GRT is the worst possible formula for the people of Illinois.