Updated: January 21, 2013 3:29PM
Good laws provide a provable benefit to citizens. Bad laws provide only a false sense of benefit.
In Illinois, the recent Democratic legislative initiative to require public corporations to reveal their earnings and what they pay in income tax falls into the second category.
It’s a valid goal to construct a fairer tax policy, particularly when two-thirds of corporations in Illinois pay no income tax. But the complexities of corporate structure make it virtually impossible to produce a clear-cut bottom line.
Wisconsin legislators tried to do the same thing with corporate tax disclosure, and it has been a pointless endeavor. The goal there, as here, would be to reveal whether tax breaks provided to companies were worth it and what’s the cost to taxpayers.
The Illinois plan, approved by the Senate and now before the House, would require publicly traded companies to post tax information online every year — including net income, tax liability before any tax credits and what is actually paid in tax. Why is that so difficult? Many economists and tax experts agree that corporations are better at hiding revenue than states are at finding it.
Companies don’t like to reveal competitive information if they can camouflage it, and their structure often helps them hide it. Big companies function with subsidiaries that pay taxes separately and operate in multiple states, some that have no corporate tax.
Many business executives cry foul when asked to defend sweetheart tax deals and public subsidies. They make shameless threats to move out of state if they don’t get such deals.
As a result, local and state government in Illinois have given billions in subsidies without proving they were sound investments. Corporate taxes generated $2.3 billion in Illinois last year, about 7 percent of the state’s total tax haul, according to the state revenue department.
A good law must work, not merely make us feel good about its intention. The Democrats’ simplistic proposal doesn’t appear likely to achieve its goal.