Doing Business With The Simpsons

The Illinois legislature proposed a tax package that is designed to keep the $CME and $CBOE from leaving the state. Is it enough? Indiana governor Mitch Daniels has said that being next to Illinois is like living next door to the Simpson’s.

The bill they will pass will tax roughly 27% of exchange transactions. The rationale for taxing them is the transactions initiate and take place within state borders. That assumption is incorrect. While 15% of the exchanges transactions take place using open outcry on the floor, most of those transactions initiate from all other points in the world. If I were a floor trader, I’d be ticked at Democrats in Illinois. They just gave CME and CBOE an extra incentive to try and close the floors.

The second concept being tossed about is that CME and CBOE shouldn’t be given tax breaks because they are profitable. Does that mean we only give tax breaks to companies that are poorly run and losing money? Profitability of a company shouldn’t ever be a consideration for a tax break.

The core problem is that Illinois is one of the most expensive places to do business in the nation. The Democratic tax increase last January has cost the state many businesses, and it has lost thousands of jobs. The migration of companies from high tax/high cost states has accelerated in the last decade. The American south is rising again.

Meanwhile, taxes are killing jobs. In another study, the Illinois Policy Institute finds that Illinois was enjoying a jobs recovery until the tax hike passed this year. Then the job numbers headed south in a hurry, and payrolls shrunk by 89,000 in the six months following the revenue grab. The Illinois jobless rate is 10.1%, well above the 8.6% national rate.

Many on the right are ticked. They don’t favor a carve out for big companies. Dealmaking perpetuates the crony capitalism culture that is dominant in Illinois. Do you want to be beholden to your elected official? The left is mad too, since they incorrectly see high taxes as a path to prosperity. The left is against profits, and think that just because the government built some infrastructure, they’re entitled to all money.

Will CME or CBOE move? It depends. They will total up the cost of moving. Then figure in costs from lost network effects and disruption of operations and balance it against the cost of staying. But if I were them, I’d also try to figure out a way to calculate the cost of the political risk of my tax break going away. The exchanges are in an international competition for capital. The cost of operating a business in Illinois is expensive not just because of taxes, but because of all the rules and regulations that accompany them. It’s not fun to try and operate a business when there is a knife being held to your throat.

follow me on twitter

Thanks for the link Instapundit! Welcome to his readers.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

You might be interested in:
blog comments powered by Disqus
Stop SOPA