Dugan & Lopatka Blog

About a  year ago, Illinois Governor Pat Quinn proposed a 50% increase in the Illinois income tax rate. That included an increase in the individual rate from 3% to 4.5% and an increase in the corporate rate from 4.8% to 7.2%.

Back then we added a “Tax Calculator” to our website, so you could quickly determine how that proposal would affect you.

Now Governor Quinn has proposed ”a 1 percent tax surcharge for education” as part of his new budget plan outlined on Wednesday, March 10, 2010. That would increase the tax rate from 3% to 4% on the individual side,  a 33% increase.

That 33% increase would also apply to most small and mid-sized businesses, since these companies are generally organized as proprietorships, partnerships, LLCs or “S Corporations”. That means the business income is taxed on the owners’ personal returns at the individual tax rate.

It’s not clear how the 1 percent tax “surcharge” would apply to the current 4.8% corporate rate. It seems like it should simply mean an increase to 5.8%. However, some media outlets have reported that the corporate rate would also increase 33%.

Last year’s proposals also included an increase in the personal exemption amount. The new proposals do not include any increase in the exemption amount that we see from what’s been published so far.

We’ll update our Tax Calculator for the new proposals as soon as we get some clarification.

Stay tuned.

I recently had lunch with Raman Chadha, from DePaul University’s Coleman Entrepreneurship Center.

Raman has had an interesting business career. After spending some time in the banking industry, he started his own consulting firm, helping entrepreneurs start, grow, and manage their companies.

He’s now the Executive Director of the Coleman Center, and he’s on the faculty of DePaul’s academic program in entrepreneurship.

Raman and I feel the same way about people who have taken the risk to start their own business. Entrepreneurs Rock!

We had lunch at the Ivy Restaurant, right here in downtown Wheaton, Illinois. As we were leaving, we had a brief conversation with the owner, Dick O’Gorman.

Dick opened the restaurant a year ago, right in the middle of the recession. We asked Dick why on earth he’d start a new business in the heart of a recession.

His reply: “We’ll if 10% of the people are unemployed, that means 90% are still working. And those are customers we can serve.”

To paraphrase Professor Terguson from the movie Back to School:  “Dick, I like the way you think. I’m going to be watching you.”

Yes, we’re still in an economic downturn. But that doesn’t stop new entrepreneurs. They have innovative ideas for products, services or technologies. They also have faith in themselves and their ideas.

Sure enough, the Entrepreneurial Spirit is alive and well!

To learn more about the Coleman Entrepreneurship Center, check out their website at http://cec.depaul.edu/.

We hear a lot about climate change and climate gate.

What we really could use now is a climate of confidence.

There’s so much uncertainty on every front, at every level.  Whether it’s the economy, the deficit, unemployment, health care reform, or taxes, we just don’t know what to expect next.

That uncertainty is hampering our economic recovery in a big way.

We often hear that consumer spending drives our economy.  Well, consumers aren’t spending like they did before. You’re no doubt spending less if you’re unemployed or under-employed.

Even those that make up the 90% with jobs are spending less than they use to. I know I am, as are most people that I know.  And why is that? Like I said, we just don’t know what to expect next.

We do know what small businesses mean to our economy. A 2009 report from the U.S. Small Business Administration tells us that small firms represent 99.7% of all employer firms, employ over 50% of all private sector employees and have generated 64% of net new jobs over the past 15 years.

Many small businesses are “on the fence” right now when it comes to capital spending or hiring new employees. But that would change if business owners were confident in what lies ahead.

And the confidence level would rise dramatically with a stable tax policy, the prospect of lower taxes, not higher taxes, less government regulation, not more regulation. You get the idea.

A climate like that would get small business off the fence and help jump start this economy.

Congress is working overtime right now, or so it seems. 

I sure hope they’re not getting overtime pay, either time and a half or double OT.

There are a few jobs bills that have been recently introduced in Congress. They’re designed to encourage jobs hiring by offering companies limited tax credits and temporary payroll tax relief.

Personally, I don’t think these incentives will do much to add new jobs.

I’m a strong proponent of lower taxes, capitals gains tax rates and some tax credits.

But companies don’t hire new employees because of a tax credit. They hire new employees when they need them.

If your company is growing you’re likely in a hiring mode. And it’s probably time to hire new employees, if you’re ramping up for an expected increase in orders and new business.

Lower taxes? Bring them on! 

Lower capital gains tax rates?  Let’s keep them low like they are right now.

But these tax proposals to create new jobs? I don’t think they’d have much impact on real jobs growth.

So what do we need to jumpstart this economy?

For starters, we need a climate of confidence.

More on that tomorrow.