Fritz Pfister

The Capital Area Association of Realtors MLS has member brokers reporting a surge in the number of homes for sale. The 1642 home listings are now ahead of last years record inventory of homes for sale. The 1001 expired and withdrawn listings are greater than the 923 homes sold and closed, which are down 6% from last year. The good news is the number of home listings under contract are running 8% ahead of last year at this time. Hence a rebound in housing is underway.

One could not find a more stable housing market than in Springfield IL. and surrounding communities to study. While the state and nation experienced dramatically fewer home sales, and double digit price decreases, Springfield came within 29 closed sales of the all time record, and home prices fell a mere 1% to a median sale price of $99,000 in 2006.

The reported rise in wholesale prices this week of 1% in March appears to have inflation in check, however fuel and food surged upward. Families don’t care if prices are up 1% but they do care when gas goes from $2.39 a gallon to $3.39 a gallon. They notice when the grocery cart full of groceries for the week goes from $250 to over $300. These two necessities will cause consumers to cut spending in other areas of their budget.

The buying power of consumers is essential for the recovery of the housing market. When consumers have more disposable income they are more likely to spend on products for their home, or to sell and purchase another home. The rising costs of necessities will dampen enthusiasm for major purchases.

With the housing market in the midst of a rebound, with near record numbers of homes being sold, the passage of the gross receipts tax (GRT) would have the same impact upon consumers regarding major purchases. Diminished buying power. Farm Bureau studies estimate that the cost of goods in IL. would increase by 7% if the GRT passes. That study was based upon the original proposal of a .5% GRT. Due to the pyramid effect of the tax, the now proposed increase in the cost of goods to consumers will approach 10% with an even greater .85% GRT.

If consumers are adjusting their budgets for the recent increases in food and fuel prices, what will happen when the cost of goods increases by double digits in IL.? Businesses along the border of other states will lose customers to the short drive across the state line.

If the GRT is passed into law, many businesses will cut jobs, close, or leave the state due to loss of customers, and revenue. The tax is collected whether or not the business is profitable. The number of jobs lost could be in the tens of thousands statewide. Witness the fee increases during the governors first term that cost the state over 20,000 trucking jobs as an example.

The GRT will impact every business in the state, regardless of the $2 million threshold, and regardless of the governors claims. Small businesses may not pay the GRT if receipts don’t exceed $2 million, however the cost of goods and services they purchase will increase, forcing small businesses to pass along the increased costs to consumers. If the consumer will pay the higher prices. The consumers response to higher prices will determine the survival of those businesses. This doesn’t even account for the new 1.95% tax on services. How many small businesses pay accountants and attorneys that will be raising their prices to account for this never before tax?

If the GRT is imposed upon businesses, the businesses that survive and elect to stay in IL. will pass along the cost of the tax to consumers. This will reverse the momentum in the housing market. With the loss of jobs, combined with the higher cost of living diminishing the buying power of consumers, there will be fewer buyers with less disposable income, and more home listings will be added to the current record inventory of unsold homes. This could cause home prices to fall precipitously. The law of supply and demand says so.

The goal of health insurance for all citizens of Illinois is a noble cause. No one is against the proposal, only the means by which to fund the proposal. The passage of the GRT would place Illinois at a severe competitive disadvantage with neighboring states, and severely affect the ability to attract new businesses. Why would any business want to relocate to IL. that would have the highest business taxes in the Midwest? The current administration’s anti-business policies will derail new business development.

The truth is that private sector businesses, from major corporations to mom and pop shops, create and maintain jobs, not the government. A governmental business friendly policy that encourages new business development would allow the creation of tens of thousands of new jobs. More jobs and a thriving economy would generate more revenue to the state than the GRT. Then the government could use that increased revenue to fund the health insurance proposal.

Hopefully the democrats that rule both houses will listen to their constituents and defeat this proposal. Should they march in lockstep with leadership, the IL. economy will suffer a long term downturn, and all citizens will suffer through a self imposed statewide recession. The legislature and governor can pass the regressive GRT and cost the state tens of thousands of jobs, or they can change policy to encourage the creation of jobs. That decision will be made in the next few weeks of the spring legislative session.

Now is the time to contact your state representatives and senators to voice your opposition to this economically disastrous tax proposal. Please forward this blog to all your friends throughout the state.