Merge Left

Remember when the employees in a corporation paid taxes to the government ? The latest “innovation,” from the sellouts in the Illinois legislature, is letting the corporations pocket the taxes that would be paid to the state of Illinois. David Cay Johnston explains:

Painful as it feels to have a lot of hard-earned income taken from your paycheck for taxes, a new Illinois law does something Americans may find surprising. It lets some employers pocket taxes for 10 years.

You read that right — in Illinois the state income taxes withheld from your paycheck may be kept by your employer under a law that took effect in May. Continental Corporation (CONG.DE), the big German tire maker; Motorola Mobility (MMI.N), the cell phone maker; and Navistar (NAV.N), the maker of diesel trucks for industry and the military, are in on the deal. State officials say a fourth company is negotiating a similar arrangement.

Chrysler and Mitsubishi arranged deals with the state in the depths of the Great Recession in 2009; Ford got one in 2007, since revised to let it keep half of its Illinois workers’ state income taxes.

Instead of paying for police, teachers, roads and other state and local services that grease the wheels of commerce, Illinois workers at these companies will subsidize their employers with the state income taxes they pay.

The deal to let employers keep half or all of their workers’ state income taxes represents a dramatic expansion of a little-known trend in the law: diverting taxes from public purposes to private gain.

Throughout the United States, big box retailers like Wal-Mart (WMT.N), Lowe’s (LOW.N) and Cabela’s (CAB.N), and in some cases entire shopping malls, often negotiate deals to keep sales taxes that customers pay at the cash register, using the money to finance construction of their stores. This gives them a huge advantage over retailers without such subsidies, while reducing revenue to local governments, which in turn creates pressure for higher taxes.

The fourth company David Cay Johnston mentions must be Sears. From Friday’s Chicago Sun-Times article on the latest tax-cut for the CME Group (Chicago Mercantile Exchange and Chicago Board of Trade corporate parent) and Sears:

Under the terms of the tax-cut plan being considered, $100 million of that windfall would go toward Chicago-based CME Group over a two-year period.

The corporate parent of the Chicago Mercantile Exchange and Chicago Board of Trade has threatened to move out of state because of this year’s jump in corporate income taxes that Quinn approved. CME Friday declined to comment.

Another chunk of the windfall would fund a $15 million state EDGE tax credit for Sears, which would enable the company to pocket half of what its existing employees pay in state income taxes and all of the income taxes paid by new workers. Like CME Group, Hoffman Estates-based Sears has threatened to pull up stakes without some form of tax relief.

And how would the State of Illinois pay for that tax-break to CME and Sears? How about taking the money out of Medicaid funds? Maybe eliminating meal-assistance programs? Maybe closing some clinics for the mentally ill?