Daniel A. Silver
There is a solution to Illinois’ budget crisis, but it requires unity and willingness to act. Right now, in Illinois, that solution is to fast-track pass the LaSalle Street Tax, House Bill 106.
Each affected business entity has been tasked with focusing all of their attentions begging for monies that are not available. As long as each simply fights to save its own budget line, the end result will be that all agencies, programs or institutions will suffer severe cuts, some so harshly that they may cease to be able to exist. This is inevitable, unless we take a different approach: Let’s start by agreeing that all of these programs, agencies and institutions are serving vital public functions. With that in mind, we can unite to demand the real solution to the state’s revenue problem. Individuals who join together on a single issue can instruct politicians by our sheer numbers to take specific actions.
It’s just not that complicated. The use tax in Illinois is right at 6.25 percent on most transactions you engage in. You pay at least 6.25 percent for general merchandise transactions in Illinois. There are exceptions. For example, the tax is only 1 percent in Illinois for qualifying food, drugs and medical appliances. Taxes in Illinois for wagering start at 15 percent.
However, those financially able to gamble at the Chicago Board Options Exchange and the Chicago Mercantile Exchange, while utilizing a wide variety of Illinois services, pay no tax to Illinois on their transactions. That’s right, zero.
According to a CPEG report, there is an average $900 trillion traded per year on those exchanges. Another way to look at it is that there are an average 14 million contracts traded per day.
Illinois Representative Mary Flowers has proposed House Bill 106, sometimes referred to as the “LaSalle Street Tax.” When enacted, HB 106 will require buyers and sellers to pay only a single dollar contract fee on all agricultural futures and futures options traded, and a $2/contract fee on all non-agricultural trades. The tax amounts to less than 0.001 of 1 percent of average contract value. Not the 6.25 percent tax on transactions you pay but only 0.001 of 1 percent on each transaction contract. Transactions involving securities held in retirement accounts or involving mutual funds are exempt.
Given the volume of trading on these two exchanges, the tax would generate an estimated $10 billion in revenue annually. That would be enough to avoid the current projected cutbacks and start paying down the pension deficit.
Even though a tiny tax on the Chicago exchanges will raise $10 billion a year hereafter, even though that tiny tax will eliminate Illinois’ financial crisis and save thousands of livelihoods and lives, too many politicians and citizens have failed to act on making passage of House Bill 106 our single greatest priority. All other efforts will reap little or nothing to benefit us, but banding together on this single issue has the potential to save all of us.
Now, people will try, sometimes quite hard, to muddy the waters with any range of naysayer arguments. People can always think of ways to not proceed. They will tell you there is no point to making the effort. There is. Many people’s lives and livelihoods depend on it.
They will tell you that these exchanges will pick up and move out of Illinois. That is a particularly annoying argument. If the business done at these exchanges is contributing to business in Illinois, and Illinois to it, then they should be contributing. This is not raising any existing tax, something the governor says he does not want to do. This is assessing transactions not yet being taxed.
Further, the owners and operators of these exchanges, the CME Group, are not the ones who will be paying a dollar or two for each transaction contract. The owners and operators are like the middlemen who always take for the house, as in a gambling house; in other words, they win no matter whether the buyers and sellers win or lose, and they pay nothing as a result of House Bill 106. So they have no incentive to pick up and move.
The traders are the ones who will pay a dollar when they engage in transactions, and only those traders whose perspectives are obscured by greed will have the gall to complain about this tiny tax that is so necessary to this state’s survival.
Also, traders at the Chicago exchanges cannot currently trade many of these products anywhere else since many of these products, like the S&P 500 index futures, are exclusively licensed for trade on these exchanges.
Critically, the exchanges have millions of dollars sunken into the computer-based infrastructures enjoyed in Illinois. The expense of relocating the hard-wired trading infrastructure would not be economically feasible. The facility in Aurora alone is the size of 7.5 football fields. The setup of co-locators to matching engines along straight-line and fiber-optic and microwave transmission is such that the most major traders are in such close proximity to the exchanges that the transmission of information is described by them as almost at the speed of light. Neither the CME Group nor the traders would have incentive to upset that setup as a result of HB 106.
When similar taxes were instituted at the other major exchanges around the world, none of them moved their bases of operations. Taxes of this type have already been successfully implemented in more than 25 countries without causing any exchanges, or significant volume of traders, to trade elsewhere.
In other words, when thought through, arguments made against passage of H.B. 106 are not worth a hill of beans when compared to the benefits to every citizen of the state of Illinois.
Every person in Illinois should stop whatever they are doing to make contact with their legislators and the governor and demand immediate passage of House Bill 106. It is the duty of those who have retained a moral compass and been made aware of this opportunity to make every effort to support it.
Daniel A. Silver is an attorney and an instructor in the SIU Paralegal Studies Program.