Debunking the myths about corporate tax transparency

Two corporate tax transparency bills, in Chicago and in Springfield, are picking up steam. Illinois Speaker Michael Madigan even chided rich corporations for demanding handouts when they contribute “little or nothing to help fund the very services from which they benefit significantly.”

This makes the foes of corporate tax transparency nervous. In a Crain’s opinion piece, Marc J. Lane argued against the bills last month and, recently, Crain’s editorial board also denounced them. Since we’re likely to hear the myths they’re peddling again, it’s worth debunking them now.

Myth No. 1: Corporate tax transparency will be bad for business in a state that has “the fourth-highest corporate income tax rate in the nation.”

This ranking is the sort of “fuzzy fact” that gets trotted out repeatedly, despite being of dubious value. On the books, Illinois’ corporate tax rate appears substantial. But the Department of Revenue has reported that two-thirds of corporations pay absolutely nothing in corporate income tax to Illinois, meaning the effective tax rate is far lower.

But, regardless of where Illinois stands against other states, the real question is: Whose business are these transparency bills going to be bad for?

Well, if you count blackmailing and bribing one’s way out of paying taxes as “business,” then they’re going to be bad for companies like Decatur-based Archer Daniels Midland Co. And they may cause some embarrassment for the two-thirds of corporations that pay no corporate income tax, if it turns out they’re handing the bill to Illinois taxpayers for patently absurd reasons. Basically, they’d be bad for businesses that act without a sense of responsibility to the people of Illinois.

But the bills won’t be bad for the one-third of corporations that pay their fair share of taxes to support the state services that allow them to thrive. And they won’t be bad for the people of Illinois’ business, since we need tax revenue to invest in the services that will make Illinois strong.

Myth No. 2: The bill is “too narrow” by only requiring publicly traded companies to disclose limited tax data.

The bills only require disclosure from publicly traded companies because the SEC already requires these corporations to file tax data at the federal level, which is publicly available via EDGAR. These bills would require a similar process be enacted at the state level in Illinois.

Moreover, the current system allows sophisticated — one might say “unpatriotic” — corporations to extract handouts unavailable to smaller businesses. Corporate tax transparency is a vital first step in creating a level playing field that requires corporations with ample resources to invest equally in the infrastructure our state requires to prosper.

Myth No. 3: The bill requires disclosure of data “not easily understood by the public or policymakers.” 

This brazenly suggests that the citizens and legislators of Illinois are too stupid to understand the workings of the corporate world. But we live in a democratic society where the public enjoys the right to make informed decisions about what is good and proper. And they can only make informed decisions if the information they need — in this case, basic facts about which corporations are paying corporate income taxes, which aren’t, and why — is made publicly available.

On the basis of these myths, Mr. Lane and Crain’s editorial board suggest that legislators can hold corporations accountable for contributing to our state without enacting corporate tax transparency. That’s like saying a business manager could improve a company’s return on equity without looking at its books. No sane businessperson would think this way, so why should the people of Illinois?

We can’t have a meaningful conversation about the costs and benefits of particular tax incentives until we determine which corporations are paying, which aren’t, and why. In other words, we’ll only have accountability if we enact transparency.

David Borris, owns Hel’s Kitchen Catering in Northbrook and serves on the executive committee of the Main Street Alliance small-business network. David Hatch, is executive director of the People’s Lobby, an Illinois affiliate of National People’s Action.

This Op-Ed by David Borris and David Hatch originally appeared on Crain’s ChicagoBussiness.com on 24 January, 2014. I contributed writing for this piece.

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