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The Mechanics
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Economic Development Tue Nov 29 2011

The State's Tax Break Plan for The CME and Sears Holdings

According to the Tribune, the State Senate has approved a plan that would give tax breaks to two specific companies, although the House of Representatives overwhelmingly rejected the Senate plan. The proposed plan would give incentives to Sears Holdings Corp. and the CME Group Inc., which is the parent company of the Chicago Mercantile Exchange and the Board of Trade, to stay in Illinois.

The companies had threatened leaving the state over the rising income tax and there have been other stories involving other companies wanting to leave Illinois, including sandwich company Jimmy John's.

In this situation, the Chicago Mercantile Exchange wants to stay in Chicago because it seems to be doing very well in this economy. Of course, this is the same company that owns the Board of Trade, which you might remember from mocking Occupy Chicago by putting up a "We are the 1%" sign and dropping McDonald's applications on the protesters.

Meanwhile, the Sears Holdings deal seems a bit murky and has an interesting side in regards to the money being given to the nearest school district. From the Tribune:

Cash-strapped Community Unit School District 300 is saying it cannot support the revised legislation because it doesn't fully reflect a tentative agreement it reached last week with Sears Holdings and the village of Hoffman Estates, which is home to the retail company's corporate headquarters. In that deal, Sears would give up some tax relief, which would funnel more money to the district.

So in the deal the State has crafted Sears is getting a tax break in order to stay, but it ends up not giving that much money to the nearest school district.

While the CME is doing well, Sears is suffering major losses. In the third quarter of the 2011 Fiscal Year, Sears Holdings sales fell 0.7 percent at Sears stores and 0.9 percent at Kmarts, according to the Tribune, while Sears Canada sales fell 9.7 percent in that quarter.

But the odd thing about the bill seems to be that the tax incentives will be given to only two companies. While it makes sense as to why the CME would stay in Illinois due to how well it is currently doing in this economy, Sears Holdings only seems to make sense in terms of being iconic. Yes, if these companies would move their headquarters outside of Illinois jobs would be lost, but jobs will also be lost if any other company moves their headquarters out of state.

But the biggest question out of this comes in with where the money will come from. After all, raising the corporate income tax is a way of generating revenue, something Illinois desperately needs. The Tribune article explains that "The cost would be completely offset by a resurgence in state corporate income tax receipts that is expected with the expiration of a tax break that allows businesses to accelerate their deductions for capital investments through 2012." The article then goes on to explain that the state expects the expiration of the current tax break to enable the state to pay off their backlog of bill. (For a more detailed explanation of how this will be paid for, Whet Moser at Chicago magazine has a detailed post.)

At this point the future of this bill remains to be seen due to the recent development of the house rejecting the bill. The question still remains if this will really payoff over time.

 
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