A holiday twist: Sears closings and tax credit expansion

Lawmakers in Illinois breathed a sigh of relief on Dec 16, when the legislature finally managed to approve a tax cut that would keep Sears Holdings Corporation from moving its headquarters out of state. In an economy where businesses aren’t hiring many, it’s extra bad if the businesses you do have pack their bags and move out.

But then legislators got coal in their Christmas stockings: Sears announcing that, due to lousy holiday sales, they’d be closing more than 100 stores nationwide.

At the same time as Sears got its tax incentives, the working poor in Illinois also got a boost. The same legislation doubled Illinois’ Earned Income Tax Credit program, giving poor families who work cash back on their return.

With all the arguments, local to national, about who should be taxed–the rich or the poor–hearing about Sears’ financial woes made me pause. Arguments to keep tax rates for corporations and the wealthy low often hold that people with money are those who drive the economy. Obviously, in closing more than 100 stores, Sears isn’t going to be doing much in the next year to create jobs–except maybe for those folks who stand at busy intersections with giant yellow sandwich board signs, directing people to a going-out-of-business sale.

But community members in Hoffman Estates, where the company has its headquarters, are arguing that the tax incentives are essentially another bailout–an influx of cash given to a struggling company. In a way, Earned Income Tax Credit is similar–an influx of cash given to a struggling family. The difference is, data show, that the program might benefit the economy.

According to the Sargent Shriver National Center on Poverty Law and research from the Brookings Institution, the program helps spur economic growth. Why? Their answer is simple. When rich people get extra money, they save it. When poor people do, they spend it. In fact, the Congressional Budget Office says that increasing the program would create two to three times more economic growth than extending the hotly debated tax cuts under former President George W. Bush.

What’s interesting to me is the way this legislation was turned on its head. We thought that money to make Sears stay put was money to help the economy, and tax credits for the poor just a nice bonus during the holidays. But with the company’s dismal financial outlook, it may be the poor who are the job creators this time. That’s the sort of Gift of the Magi kind of twist that could only come this time of year.

© Community Renewal Society 2012

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