GRT Study

May 9, 2007

FOR IMMEDIATE RELEASE

Contact:
Mary Schaefer/Julie Sullivan
217/529-2600
Mike Scobey
773/405-1906
 

Gross Receipts Tax Would Cost Illinois 14,000 Construction Jobs,
Add to Consumers’ Housing Costs, Study Finds

SPRINGFIELD, Ill.– The gross receipts tax proposed by Governor Blagojevich would take a huge bite out of construction employment in Illinois, as slower growth in the state’s economy due to the new levy would cause a projected permanent loss of 13,968 jobs in the sector, a new study finds. The study results were provided in written testimony today in a hearing of the Illinois House Committee of the Whole on the proposed gross receipts tax.

The study, commissioned by the Illinois Association of REALTORS, finds that housing construction employment alone would fall by more than 1,700 jobs under the weight of the proposed gross receipts tax (GRT).

The research also calculates that the GRT would increase the cost of new homes in Illinois by $5,400 to more than $12,000, depending on the purchase price of the home.

“These new research findings offer further proof that the mammoth tax increase proposed by the Governor would siphon growth, vitality and jobs from our state’s economy and cause far more harm than any possible good it might achieve,” said Gary Clayton, Chief Executive Officer of the Illinois Association of REALTORS. “This purported tax on business in fact takes a heavy toll on the working families of Illinois.”

The new research was conducted by RCF Economic and Financial Consulting, Inc. of Chicago. It projected the impact of the proposed tax on construction employment by estimating the increased tax burden on businesses from the proposed GRT, the reduction in state economic and population growth resulting from that increased burden, and then estimating the effects of slower population growth on construction employment.

“Construction is fueled both by the need to replace old buildings and by the need to house new residents, so it can be expected to be sensitive to changes in population growth,” said George S. Tolley, president of RCF and professor emeritus in the University of Chicago’s Department of Economics.

The strength of the GRT’s impact on the construction industry’s share of employment was estimated using 2002 data from the Illinois Department of Revenue, federal Bureau of Labor Statistics and the U.S. Census Bureau.

The impact of the GRT on the construction industry also can be expected to increase the cost of housing as firms pass on the added cost of the tax, the RCF study found. This is due to the “cascade effect” that occurs as the gross receipts tax is applied at more than one stage in the process of building a house.

For example, an electrical contractor that pays the GRT will pass those added costs along to the developer, who then pays the GRT on the entire sale price of the home and passes the cumulative tax onto the consumer. The same calculation applies to other contractors and it applies to firms from which the contractors have purchased materials, RCF said in its study.

In a previous phase of its research on behalf of the Illinois Association of REALTORS, RCF projected that the GRT would increase the cost of a new home by nearly 3 percent (2.84 percent). Applied to existing Illinois data on house prices by income group, that impact translates into additional housing construction costs ranging from $5,339 for lower middle-income families up to $12,261 for families earning $100,000 or more.

RCF calculated the impact of the GRT in Illinois based on a 1.95 percent GRT on services and a .85 percent tax on construction contracts and materials.

The study is available on the IAR Web site at www.illinoisrealtor.org/grt.htm.

The Illinois Association of REALTORS (IAR) is a voluntary trade association whose 60,000 members are engaged in all facets of the real estate industry. In addition to serving the professional needs of its members, the IAR works to protect the rights of private property owners in the state by recommending and promoting legislation that safeguards and advances the interest of real property ownership.

RCF, founded in 1978, is a Chicago-based economic consulting firm serving both public and private sector clients.

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