When I write about how the state of Illinois doesn’t raise enough revenue to pay for the basic services the people of the state deserve I inevitably get someone writing to me to complain that retirement income in Illinois is not taxed.
Which it is not.
By the way, that’s true for everybody’s retirement income income in Illinois. Not just teachers, which is what I think they think it means.
The truth is that if the state were to end the crazy practice of taxing everybody else’s income at the same rate, rich or poor, JB Pritzker and the housemaids at the Pritzker family Hyatt Hotels, and enact a progressive fair tax, I would have no problem having my pension included as taxable income.
But then I hear from Bernie Sanders that Amazon paid no federal income tax last year.
Yep. That Amazon.
Jeff Bezos’ Amazon. The Jeff Bezos who is now the richest man in the world.
The Jeff Bezos who wants more tax breaks to bring his second headquarters to a city near you.
Amazon lists two line items that likely got them here: tax credits worth $220 million and stock-based compensation worth $917 million.
These reflect the normal workings of the tax system, according to Annette Nellen, professor and director of the Master of Science in Taxation program at San Jose University.
“I would stress Amazon is just following the provisions that are in the law,” Nellen said.
Companies aren’t required to spell out which tax credits they claim in their annual report, but Nellen said they likely include write-offs for research and development, domestic production, and equipment depreciation for Amazon.
Stock-based compensation, on the other hand, is spelled out a bit more clearly. Stocks are often handed out as a form of compensation to employees (usually executives) at small startups without much cash on hand. It’s also a common incentive for executives to make the company more profitable.
Companies are taxed on their income, which is revenue minus costs. When stocks are offered as compensation, they are counted as a cost. This reduces the company’s taxable income.
The trick for companies? They get to write off the value at which the stock was later traded, not the original price for which they sold their stock to employees.
Now I get that with this argument I am mixing state and federal tax laws. But it is even crazier that retirement income is taxed by the feds and Amazon pays nothing.
The average teacher pension in Illinois is $50,000 a year with no Social Security.
Even if you taxed it, how in the world does this address the revenue shortfall in the state when we are giving it all away to companies like Amazon?