SPRINGFIELD, Ill. (AP)— Gov. Pat Quinn wants to end a state tax on natural gas, providing a little financial help to people who use gas to heat their homes and businesses that use it to manufacture products. Sounds like a winning idea for everyone, right?
Not so fast.
Experts raise a lot of questions about how much that would actually help the economy, what damage it could do to the state budget and whether it’s fair to cut taxes for some people but not all.
In his State of the State address, Quinn called the tax unfair because it “is not based on the ability to pay. Regardless of income or whether or not you’re making a profit, you pay this tax.”
The governor’s office said the tax generated just over $159 million last year. The money came from nearly 3.5 million residential gas customers, 250,000 retailers and more than 10,000 large businesses and manufacturers.
“By abolishing it entirely, we can provide targeted tax relief to both consumers and businesses,” Quinn said. “Illinois will be the only state in the Midwest without a natural gas utility tax on manufacturers, retailers and everyday families.”
The Citizens’ Utility Board estimates the average homeowner would save $35 to $40 a year if the tax were eliminated. “Our view is that if there’s a possibility of lowering energy bills for consumers, that’s a good thing,” said CUB executive director David Kolata.
The business-oriented Taxpayers’ Federation of Illinois sees it differently.
The president, Tom Johnson, pointed out that Quinn’s plan would do nothing for people who heat their home with electricity, which is subject to a tax like the one on natural gas. People who heat with propane or heating oil would still have to pay sales taxes on their fuel.
The tax break also would apply to rich and poor alike, Johnson added. A better approach might be to offer some sort of home-heating tax credit to all poor people, regardless of whether they use natural gas, propane or electricity, he said.
“You can do it in a much more targeted, less costly way,” Johnson said.
Quinn’s other big selling point is the boost to the economy from cutting the tax.
Business groups welcome the governor’s proposal, even if ending the tax hasn’t been at the top of their agenda. The Illinois Manufacturers’ Association, for instance, has been trying to get a tax credit for all energy costs related to production.
Still, the group says many businesses would benefit if the gas tax were eliminated.
“Outside of personnel costs, energy is often the biggest cost for a manufacturing company,” said IMA vice president Mark Denzler. “They could maybe hire some additional workers. They could buy some additional equipment for the factory.”
Some economists and tax experts are skeptical.
If Illinois cuts that tax without trimming spending, then the cost simply winds up being paid by some other part of the economy and there’s little or no benefit, they said. And the tax is so small compared to the state’s vast economy that it’s unlikely to make a noticeable difference. The revenue amounts to roughly one-quarter of one-thousandth of Illinois’ $650 billion gross state product.
“I don’t mean it’s irrelevant. Everything matters,” said University of Illinois finance professor Don Fullerton, who works with the school’s Institute for Government and Public Affairs. “This could matter a bit at the margins.”
The Quinn administration could offer no studies or internal reviews that estimate the economic impact of ending the tax. It’s something the Democratic governor has been considering for quite a while as a way to help consumers, said spokeswoman Brooke Anderson, and state experts have assured him it’s a good idea.
The tax is paid by companies selling natural gas, who pass it along to their customers. It amounts to 2.4 cents per therm, a measurement of heat that’s roughly equal to running a gas furnace for an hour.
The administration estimates 70 percent of the savings from ending the tax would go to residential customers, with the rest going to businesses.
As for people who don’t use natural gas, Anderson said Quinn may have proposals in the future to help them.
For some people, a major question is whether it makes sense for the state to give up $159 million when it’s already deep in the red. State government has cut spending and increased taxes but still has billions of dollars in overdue bills it can’t afford to pay. Rising Medicaid and pension costs mean another lean year lies ahead.
Lawmakers and advocacy groups caution against reducing revenues when the state’s situation is so dire. Quinn hinted last week that he wants to replace the money by challenging the Springfield “loophole lobby” to give up tax breaks in other areas.
UPON FURTHER REVIEW(equals)
In his State of the State address, Quinn noted some positive comments about Illinois.
“US News & World Report placed Illinois in the top 5 ‘business friendly’ states that are gaining businesses. CareerBuilder ranked Illinois as one of the top ten states to find a job. And last year Money magazine rated Illinois as the top state for making a living,” he said. “Now that is moving forward.”
Chicago Tribune columnist Eric Zorn examined those claims and found that the first two held up. There was a problem with the third, however.
Money magazine did not say Illinois was the top state for making a living. That honor was bestowed by a website called MoneyRates.com, which provides information about credit card rates, mortgages rates and the like. Moreover, the ranking does not take into account the Illinois income tax increase approved last year, although a Money Rates analyst told The Associated Press that would make little difference in the calculations.
Quinn’s office says the mix-up was unintentional. The main page of the state website last week linked to the correct information.
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