Senator Bill Brady (R-Bloomington), the Republican nominee for Governor, made his tax returns for 2004-2009 available to the media yesterday (to review, but not copy) for three hours in Springfield. Reporters who did not make it to Springfield to read the returns had the benefit of an email summary.
Sen. Brady paid no federal income tax in 2008 and 2009
The big news will surely be that Senator Brady paid no federal or state income taxes in 2008 and no federal income taxes in 2009.[Go to Capitolfax for an extensive discussion]
However, as you might expect, it all appears legit, as discussed by Senator Brady's personal attorney, Jason Barickman, at a 5:00 pm telephone press conference yesterday. In short, as Barickman explained, when individuals own businesses that incur big losses, those losses can swamp any positive income, e.g., a state senate salary, resulting in no income tax being paid.
In 2008, Brady's family businesses' income (closely aligned with the housing construction and sales sector of the economy) and his Senate salary netted out to a loss, so no federal or state income tax liability was incurred or paid by the Brady family. In 2009, apparently a loss carryforward and a provision in the federal economic stimulus program raising the income threshold for small businesses paying income taxes translated into no federal income tax liability for the Brady family, even though their income was almost $120,000.
Balancing out the facts, in the housing boom years of 2004 and 2005, the Brady family paid almost $320,000 in income tax, on an adjustable gross income of more than 1.1 million dollars.
Brady family businesses had to dramatically downsize
Rounding out the story, the Brady Home business, as it declined had to cut about 75% of its staff and the Brady Realty business had to cut its staff in half. But, given the trends in the housing business and the economy in the last few years, especially in Illinois, that is not much of a story. Not in terms of economics, jobs or taxes for that matter.
However, politically, it could be another matter. Prior to today's press conference, Gov. Pat Quinn (D-Chicago) was already shouting about the Brady family having an adjusted gross income of more than 100K in 2009, and yet they did not pay any federal income tax. Team Quinn was probably aware that Brady seems to have done nothing other than apply the tax law to his income when calculating his taxes. If Team Quinn did not know that before the presser, they should by now.
Reporters' confusion about tax calculations
But, in politics perception is often reality. So, you have to ask how will that reality be shaped by the pols. Further, even some of the reporters on the call (a fairly bright group) seemed to have trouble understanding how Brady could earn about $75,000 as a state senator and yet owe no taxes. They seemed not to understand that an individual or couple with different sources of income add up the gains and losses, and if the total is negative, no income tax is owed. Indeed, one reporter referred to Brady as "Sheltering his senate income" with his business losses. So, it appears Team Quinn will certainly get some mileage out of the story.
Running a business and meeting a payroll
Further, Team Quinn will also probably argue that the decline in Brady's businesses shows he doesn't know as much about the private sector, running a business and job creation, as he claims. But, that argument has some pitfalls. Individuals can be sharp at business, act prudently and still get overwhelmed by the economic trends, including a below par business climate in Illinois. Moreover, there are a lot of voters out there who know that or can be persuaded of that. So, as usual in politics, this is ultimately a battle for the hearts and minds of voters. But, economics counts, especially in terms of which politicians can teach it effectively to the voters.
Even this correspondent, notwithstanding the above, raised the political dimensions of the story with Brady's personal attorney, who is also the Champaign County Republican Chairman:
Jeff Berkowitz: As the Republican County Chairman, do you see any political implications to not paying [federal income] taxes in 2009, even though it appears quite within the law of the stimulus program
Jason Barickman: No, you see a small business owner who has been struggling through both an economy that has been struggling [and] struggling as an Illinois business owner that is fighting some of the detrimental policies that the state has toward business owners.
Can Team Brady communicate well on the Brady income tax issue?
An intelligent answer, but will it play in Peoria and outside of Brady's downstate home turf, i.e., north of I-80? Indeed, Greg Hinz of Crain's Chicago Business followed up on this journalist's question, putting a finer point on it and then summarized the argument nicely here:
But, as a matter of practical politics, Mr. Brady still is going to have to explain how he really can make $75,000 a year as a state senator and still pay nothing, or almost nothing, in federal income taxes in three of the past four years.
Mr. Barickman said the typical Illinoisan "can relate" to Brady's financial woes. We'll see.
Why Brady is running for Governor
Of course, Senator Brady has already done a few things right in his handling of this matter. One, he put this story out and he did so late on a Friday afternoon, at almost the very time that the FDIC closed Broadway Bank, the family bank of Democratic U. S. Senate nominee and State Treasurer Alexi Giannoulias. That story should overwhelm Brady's tax returns. Two, putting the story out in April gives Brady a shot at making it a non-story by the November election. Three, the Brady argument in large part is that his businesses were hit hard by a bad national economy--and by the especially sharp housing sector downturn, in the sharply underperforming Illinois economy. Come to think of it, that last point, as it applies to residents across Illinois, is why Brady is running for Governor. Or, so we are told.