Lt. Governor Opposes Governor's Plan

Blagojevich, Quinn split over tax increase plan

By John Patterson
Daily Herald
Posted Thursday, March 22, 2007

SPRINGFIELD � As Gov. Rod Blagojevich tours the state drumming up support for his multibillion-dollar business tax increase, a growing number of fellow Democrats, including his own lieutenant governor, are expressing their concerns.

�There are a lot of ways to get to heaven and I think there are better ways,� said Lt. Gov. Pat Quinn of Blagojevich�s proposed tax increase. He said any tax plan must also include some form of significant tax relief.

Quinn plans to unveil his own plan today, one that focuses more on closing tax loopholes rather than enacting entirely new taxes.

Blagojevich is calling for a tax on all money businesses take in regardless of whether it�s profit. In return, the state would phase out the corporate income tax. Still, the end result is a nearly $6 billion tax increase on businesses.

Blagojevich spokeswoman Abby Ottenhoff defended the governor�s plan over Quinn�s.

�It�s no surprise, he�s been advocating an income tax on people for the last four years,� Ottenhoff said. �We don�t think people should pay more, we just think big corporations should pay their fair share.�

The debate creates the somewhat unusual situation of a governor and his running mate publicly feuding over tax policies, something not seen since the mid-1980s when then-Republican Gov. James Thompson pushed an income tax increase and his lieutenant governor, George Ryan, came out against it.

Like Quinn now, Ryan then said his governor�s plan lacked property tax relief.

�Most of the time I�m not compared to George Ryan,� Quinn said.

But Quinn isn�t the only Democrat with questions about Blagojevich�s plan.

State Comptroller Dan Hynes said Blagojevich�s budget doesn�t do enough to erase the state�s backlog of unpaid Medicaid bills even as it seeks to expand health care services. Hynes said the state is nearly $2 billion short of what it needs to pay medical providers, which means hospitals and nursing homes often wait months for payments.

The Blagojevich administration claims it�s cut the backlog in half since taking office, but Hynes was not convinced.

��Lie� is a strong word, but it�s a great mystery as to what happens over there,� Hynes said at a Capitol news conference where he appeared with state Treasurer Alexi Giannoulias.

Ottenhoff again defended the administration�s work on paying medical bills.

�I would think that the comptroller and treasurer would be very supportive of the governor�s budget,� she said.

The Northwest Herald says Governor Blagojevich's tax is flawed.

"This tax hike ultimately would be paid by residents, just like every other one. The governor said he stood with middle-class families. Well, middle-class families work for the companies he intends to tax. Does the governor really believe that the cost of the tax will not be passed along to employees in the form of smaller raises and reduced benefits or, worse, job loss?"

Daily Southtown says budget proposal still leaves many questions unanswered

While we support Blagojevich's efforts to ensure that Illinois citizens have adequate health care coverage, we wonder if he's moving a bit too rapidly in this area at the expense of other areas such as education and property tax relief, which we believe are higher priorities

Indiana to target Illinois businesses if gross receipts tax is enacted.

"It was widely viewed as anti-competitive," said Chad Sweeney, executive vice president and counsel for the Indiana Economic Development Corporation, essentially the equivalent of Illinois' Department of Commerce and Economic Opportunity.

"There were some negative effects people can point to, the pyramiding effect and the impact on the supply chain," Sweeney said. "It makes it a more difficult place to do business."

Is Governor's Plan Illegal

Is governor's payroll tax legal?

By Mike Colias
March 18, 2007

Gov. Rod Blagojevich's plan to tax businesses' payrolls to fund half his $2.1-billion health care reform would run afoul of federal law, legal experts say.Under the plan, employers that spend less than 4% of their payrolls on worker medical benefits would be taxed, a spokeswoman for the governor says.Lawyers say that approach could violate the 1974 Employee Retirement Income Security Act (ERISA). The federal law dictates how companies structure benefit plans so companies that do business in multiple states don't have to grapple with a patchwork of local laws. ERISA trumps any state law.The governor's payroll tax "definitely could be challenged, and I think successfully," says Linda K. Shore, a Washington, D.C.-based attorney at Mayer Brown Rowe & Maw LLP who specializes in ERISA law.

The payroll tax is crucial to Gov. Blagojevich's health care package, which aims to insure 500,000 of the state's 1.4 million uninsured adults by 2010. Employers that don't provide any insurance to workers would be hit with a tax equal to 3% of their payrolls. Companies that provide some insurance, but at an amount less than 4% of payroll, would pay some amount less than that 3% tax, based on a sliding scale. The governor's staff estimates the taxes will raise $1 billion a year. If a legal challenge were to shoot down the payroll tax, the balance would hinge on the other half of his proposal: a gross-receipts tax. Business leaders are girding for a fight on both.

Ms. Shore notes a U.S. court ruling last year that cited ERISA in striking down a 2006 Maryland law that would have forced companies with 10,000 workers or more to spend at least 8% of their payrolls on health insurance or pay that amount to the state (it only affected Wal-Mart Stores Inc.). A 2-1 appellate court ruling in January upheld the decision.

California Gov. Arnold Schwarzenegger's $12-billion health reform package includes a similar payroll tax. Some groups also have questioned whether his plan could violate ERISA.

Illinois officials say a payroll tax wouldn't violate federal law because the state wouldn't be dictating how employers should structure health benefits. The state simply wants companies to pay their share � even reimbursing a worker for out-of-pocket medical costs would count toward the 4% figure, says Bob Greenlee, deputy director of the Office of Management and Budget.

"We're on very firm ground," he says. "The assessment allows businesses that would not otherwise contribute to health care to do so, but it doesn't force companies to switch around their benefit plans."

DRAWING A CHALLENGE

But the Maryland appellate court concluded that giving employers the choice between meeting a minimum spending level or paying the state "effectively requires employers . . . to restructure their employee health insurance plans" and is "precisely the regulatory Balkanization that Congress sought to avoid" with ERISA.

Mark Johnson, a Texas attorney and an ERISA authority, says Gov. Blagojevich's proposal would draw a challenge. "You're effectively mandating a certain level of spending, and that's a benefit-design issue," he says. "That approach is pretty cut and dried that it will be pre-empted by ERISA."

The judges also cited the administrative headaches employers would face in proving to the state what they spend on health insurance. The governor's spokeswoman says employers would provide documentation in their state tax filings.

The legality of such proposals is cloudy because they are relatively new, as more states look to solve the uninsured problem, says Laura Tobler, a health policy analyst at the National Conference of State Legislatures.

"ERISA has been interpreted so broadly that it really ties the hands of state policymakers trying to craft a solution for covering the uninsured," she says.