HERALD-WHIG VIEW: Illinois needs deficit remedy, but advertising tax would have disastrous consequences

Posted: Jul. 12, 2015 12:14 am Updated: Aug. 2, 2015 12:37 am

ILLINOIS IS still without a budget after Republican Gov. Bruce Rauner vetoed a spending plan approved by the Democratically controlled House and Senate that contained a $4 billion deficit.

As the governor and legislators continue to spar over the fiscal 2016 budget and how to best address the state's deepening financial crisis, one proposal gaining momentum would have serious repercussions to Illinois' already fragile economy.

Rauner and a growing number of lawmakers -- both Republicans and Democrats -- are considering applying a 6.25 percent tax on all forms of advertising and related services, part of a plan the governor has proposed to tax services previously not subject to tax. They believe the advertising tax, and others like it, will generate new revenue that will help reduce the burgeoning budget deficit.

However, we believe imposing an advertising tax would be a serious mistake. Doing so would make Illinois the only state in the country charging the tax, and history warns us that it will create the opposite effect on revenue the governor and lawmakers envision.

Florida enacted an advertising tax in the spring of 1987 with broad, bipartisan support -- the only state to ever do so -- but legislators repealed it six months later after it became apparent it was crippling the state's economy.

Florida suffered a loss of 50,000 jobs and $2.5 billion in personal income due to lost advertising revenue. Businesses threatened to move out of state, and national and local advertisers boycotted and took their business elsewhere. That resulted in a 12 percent decline in ad purchases and $100 million less in advertising revenue, even though revenue from advertising and related services grew 3 percent nationally that year.

In addition, Florida soon realized administrative costs incurred in applying the tax exceeded the revenue it was generating. So a bad decision was quickly reversed.

Illinois shouldn't make the same mistake.

Rauner was swept into office last November by promising a pro-growth, pro-jobs agenda that we supported, but this proposal is counter-intuitive and flies in the face of the pro-business policies the governor told voters he would pursue.

The advertising industry alone accounted for $267 billion in revenue in 2014, or 17.3 percent of Illinois' economic activity. In addition, the American Advertising Federation points out the advertising sector helped produced 956,613 jobs last year, or about 16.5 percent of all jobs in Illinois.

Clearly, a state facing an estimated $4 billion budget deficit and crippling pension obligations cannot afford the kind of revenue and job loss this tax would produce.

Opposition to this tax proposal may appear to be self-serving because a considerable part of our revenue comes from advertising. An advertising tax certainly would hurt newspapers and all other media and advertising companies financially. But more importantly, it would negatively impact businesses, large and small, that rely on advertising to promote their message.

Ultimately, it would touch nearly every Illinois resident if passed.

Churches would have to pay more to promote their service times. Your favorite restaurant or bar would have to increase spending to attract patrons. Selling a home, buying groceries, improving your wardrobe, promoting a garage sale, visiting a hardware store, grooming your pet, taking your spouse to a movie -- all would cost more because of the ramifications of the advertising tax.

Mom and pop businesses, with their smaller profit margins, might not have the financial means to continue advertising, further diminishing their ability to attract enough customers to remain open. Some businesses undoubtedly will decide to operate with fewer employees, resulting in job loss.

An economy already struggling to gain steam would become more fragile.

Admittedly, the state needs to get its finances in order, but Illinois can ill-afford a tax that increases operating costs for small businesses and cools private-sector growth. Growing the state's economy by fostering a business-friendly environment should be a primary objective, and the advertising tax fails to meet that standard.

No business will want to move to the only state with an advertising tax.

An advertising tax was a bad idea for Florida, and Illinois shouldn't repeat the same mistake and expect a different result.

Say no to the advertising tax.