Caterpillar threatens to leave Illinois over taxes

By Dow Jones Newswires-Wall Street Journal
Posted March 26 at 4:44 p.m.

Caterpillar Inc., suggesting that it could shift jobs out of Illinois, is prodding its home state to cut government spending and roll back tax increases.

Doug Oberhelman, chief executive officer of the giant Peoria-based maker of construction and mining equipment, protested against the state’s tax and spending policies in a March 21 letter to Illinois Gov. Pat Quinn, a Democrat who took office in January 2009.

“I want to stay here,” the letter said. “But as the leader of this business, I have to do what’s right for Caterpillar when making decisions about where to invest. The direction that this state is headed in is not favorable to business, and I’d like to work with you to change that.”

In the letter, first reported Friday by the Lee Enterprises newspaper chain and provided to The Wall Street Journal Saturday, Oberhelman said other states have stepped up their efforts to lure Caterpillar investments since Illinois raised income tax rates in January.

A spokeswoman for Gov. Quinn said he “welcomes frank and open exchanges between the business community and government” and will discuss the matter with Oberhelman at a meeting soon.

In January, the state’s General Assembly passed a Quinn-supported bill imposing a four-year increase in income taxes designed to reap $6.8 billion in added revenue and help the state balance its budget. The legislation raised the flat rate for personal income taxes to 5 percent from 3 percent and for corporate taxes to 7 percent from 4.8 percent. In 2015, both taxes are set to decline but remain above the prior rate.

Mr. Oberhelman enclosed letters from governors or other officials in Texas, Nebraska, Virginia and South Dakota, all citing the recent Illinois tax increase and urging Caterpillar to invest in what they described as more business-friendly environments.

“If Illinois doesn’t want your business, Texas does,” wrote Rick Perry, the governor of that state.

The governor of Nebraska, Dave Heineman, wrote: “In Nebraska, we balance our budget by controlling spending, not by raising taxes.”

An official in the South Dakota governor’s office chimed in: “In South Dakota, you make a profit, and you keep your profit.”

The Illinois tax increase will cost Caterpillar’s 23,000 employees in the state about $40 million this year, said Jim Dugan, the company’s chief spokesman. Higher taxes make it harder for Caterpillar to attract and retain engineers, accountants and other employees, Dugan said. He added that Caterpillar’s corporate taxes in the state also will increase but provided no estimate on the added cost.

“The state unfortunately continues to put off the tough decisions” about potential reductions in government spending and pension costs, Dugan said. He said Caterpillar was offering to advise the governor on cost-cutting based on the company’s own experience chopping pay and laying off workers during the 2008-09 recession.

Caterpillar’s 23,000 employees in Illinois account for about 22 percent of its global work force. In recent years, the company has done much of its investing in other parts of the U.S., mainly in areas where unions are weak, as well as in Asia and Latin America.

Last August, Caterpillar announced plans to build a $120 million plant to make excavators in Victoria, Texas. Caterpillar also announced last year plans for a new plant in Winston-Salem, N.C., to produce axles for mining machinery; expansion of a Sanford, N.C., construction-equipment plant, and a new engineering-design center in Rapid City, S.D. But the company also is increasing its capacity for making mining trucks in Decatur and has been investing in various other plants near Peoria, Dugan said.

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229 comments:

  1. ed March 28 at 2:58 pm

    People of Illinois….please keep electing neo-marxist politicians and keep raising taxes to support your bloated welfare state. We’d love an extra 23,000 jobs in Texas.

    Ed (former Illinois resident finally enjoying economic and personal liberty in Texas)

  2. Jeff March 28 at 3:16 pm

    Hey, ed. Since you’re throwing superfluous labels like “neo-marxist” around, care to qualify that with some examples as to a) what a neo-marxist is to you, and b) which politicians best fit that description. Some examples would be awesome.

    Yours,

    Jeff

  3. Beejer50 March 28 at 3:20 pm

    Yes, earnings and profits are indeed on balance sheets.

    Furthermore, name calling and labeling by some of the posters here is an example of why NOTHING is getting done by our government.

    Still, nobody has has been able to refute Cat’s P&L statements showing 2.7 billion in profit in 2010.

    If that is not enough for them, they can move to Texas for all I care.

    I for one am tired of extortionist tactics by companies that only care about their bottom line.

    You know, once upon a time, corporations had a sense of social responsibility, not just the bottom line.

    Maybe some of you think I am living in a dream world, but the truth is, we are living in a nightmare.

  4. globebag March 28 at 3:48 pm

    Marymary fool. Profits are on the operating statement. retained earnings are on the balance sheet. Communist, sympathetic liberal blowhard union lackey

  5. globebag March 28 at 3:51 pm

    yes but name calling ignorant people that can’t think and don’t understand the rudimentary relationships in finance and economics is fun.

  6. The dude March 28 at 3:53 pm

    They take those profits and pay the shareholders in the form of dividends. They also use the profit to invest in growth… Illinois should be the likely location of investment but it’s not due to its higher costs.

  7. NOprah March 28 at 4:20 pm

    It’s true. General Electric (GE) paid no U.S. tax on $5.1 billion profits in 2010.

    The story was reported by everyone from Fox News to the New York Times:
    http://www.nytimes.com/2011/03/25/business/economy/25tax.html?_r=1&hp=&pagewanted=all

    G.E.’s CEO Immelt is one of Obama’s little darlings, dontchaknow. Search on “ge obama connection” and learn.

  8. marymary March 28 at 4:56 pm

    Globebag-LOL you are hilarious!

  9. RomanB March 28 at 5:26 pm

    Caterpillar stock hit a 52 week high of $105 per share today. So much for their headquarters in Illinois being such an unfair burden.

  10. Al Winston March 28 at 5:29 pm

    Look, el Scumbago Quinn has raised taxes and driven Amazon providers out of Illinois by his stupid, stupid tactics. How many political salaries have been reduced? How many political appointment benefits have been reduced? How many administrative positions and political appointments have been eliminated? What? None you say? Or at the most, one or two? Goodness me, Jerry Brown in California made it a point to start cuts at the top BEFORE raising taxes and driving away businesses. Not Quinn, nor the other idiots this state votes in. We get the leaders we deserve, because most of our voters are morons.

  11. TerryX March 28 at 5:44 pm

    Beejer,

    From you comment at 7:13 a.m. on 3-28-11:

    You state: “Projected income for 2011 is $50 BILLION and a $6.00 per share dividend”

    The link states: “Caterpillar forecast a continued surge in sales and profits for 2011, predicting year-end revenues to hit $50 billion and per-share profit near $6.00.”

    The per share projected profits equal just under $4 billion on $50 billion in revenue or for every dollar of sales, CAT gets to keep 8 cents. How much you want to bet all the taxes that CAT pays to various gov’t bodies is more than $4 billion? Therefore, CAT’s shareholdrs take all the risk and make 8 cents out of every dollar, but the gov’ts that do nothing collect more. Sound fair.

    Do you know the difference between revenue and income? Do you know the difference profit and dividends?

  12. TerryX March 28 at 5:51 pm

    Beejer,

    From your 7:39 a.m. post you state: “in the company‚Äôs largest ever acquisition, valued at $8.6 billion in November 2010, for $7.6 billion. Now, I am not a mathematical genius, but that appears to be an instant $1 BILLION profit on their balance sheet.”

    Your math skills are decent, your accounting skills suck. When you buy an asset, you do not recoginize a “profit” even if you buy it below market value. Second, you don’t book profit to the balance sheet.

    By your “logic” in today’s housing market, if you were to buy a house valued at $150,000 for $100,000, you would have a profit of $50,000. The IRS will love you for paying early.

    For future reference, you recognize profits when you SELL the assets.

    If you or your parents ever paid tuition for an accounting class, go back and seek a refund

  13. TerryX March 28 at 5:57 pm

    Roman,

    Actually CAT’s stock hit $110/share. Maybe the market is factoring in the additional EPS that CAT will have once they leave Illinois.

  14. George Jefferson March 28 at 5:58 pm

    If this guy at CAT wants to be Governor, he should run. Instead of trying to bully and extort the people of this state.

  15. TerryX March 28 at 6:26 pm

    George,

    It’s called “movin’ on up” to the less taxed side to that deluxe low tax state in the south. Movin’ on up.

  16. Ed March 28 at 6:42 pm

    Just keep raising taxes. Your loss is our (and other right to work states) gain. In fact, I hope the Illinois Politburo raise corporate tax rates yet again.

    “I am not a Marxist.”….Karl Marx

  17. DAN March 28 at 6:44 pm

    It looks like Illinois is going to lose out to Texas on a private University deciding not to locate an campus to Rockford due to Gov Quinn taxes and failure at making Illinois business economical.

  18. mike March 28 at 6:55 pm

    It used to be that companies took pride in their heritage and contributed to the wider community of which they are a part. Those days are gone.

    Here’s an idea. Let’s reduce the corporate tax rate to zero in Illinois, so that we can all be thankful to have a manual labor job at CAT, with compensation that is 1/1000th of the CEO, without pension and a crumby health insurance.

    This isn’t about marxism. Its about simple decency, and putting your workers and shareholders in some kind of respectable balance.

    When is enough money enough money some people? It makes me wonder if he’s most irritated by the corporate tax increase or by the personal tax increase.

    As for the liberty in Texas, that’s right. You’re certainly free to live in a state that ranks in the bottom 5 for education (including dead last for people over 25 with at least a H.S. diploma) and bottom 5 states with income for manufacturing job laborers and, as a result, one of the highest disparities of wealth/poverty. But, to its credit, it reached the top 6 of states for crime rate per capita, 3rd in the number of convictions for public officials and 3rd for the number of people living in poverty.

    In fact, as I type this, it sounds like the perfect place for CAT.

  19. Jerry March 28 at 7:09 pm

    Love to read the comments from the socialists and Obamanites that only want the redistribution of wealth, in this case from the Cat owners to leeches like jeff and mike.

  20. keith March 28 at 8:05 pm

    Of course they have to raise taxes, its the only way to afford the public service unions!!

    Silly democrats, ruining this country one job at a time.

  21. momic March 28 at 8:11 pm

    CAT has many closed or skeleton plants in ILL now. The comments on this page are living proof why CAT should get out of ILL. Comments about Texas education system is laughable. How about the 85% drop out rate in Chicago High Schools? ILL is smarter?
    A corporations sole purpose is to reward investors for taking a risk with their capital (money for those of you in Cook). If the risk to reward becomes too unbalanced in favor of risk (ILL under Madigan) then companies relocate. CAT will relocate. The average factory worker could be replaced by almost any immigrant. Even easier when CAT locates in the immigrants county of origin.

  22. Matthew March 28 at 8:11 pm

    Let them go, If they do not want to contribute to our society here in Illinois who needs them. Besides we should not give in to extortion.

  23. ethan March 28 at 9:05 pm

    Well Matthew, nothing like pissing away 26K+ jobs, now is there? Imagine all the personal (worker) tax revenue leaving the state because we don’t want Caterpillar anymore. Imagine the ghost town that Peoria will become when it’s major business player says good-bye. Why Big Al’s will probably have to close it’s doors and the Pair-a-Dice riverboat casino will lose 1/2 of it’s regular customer base.

    Yes sir, if we must force big business to pay more or else, guess who’s getting the shaft once again (hint, it’s not the business entity).

  24. ethan March 28 at 9:25 pm

    Beejer50, Your argument to tax caterpillar more is due to the “profit” so noted. Without going into the fanfare of what profit is, let’s just leave it at 2.7 B for the sake of the argument.

    The obvious hole in your argument is that you justify your position by declaring the value of the profit. Since that is the case, what level of “profit” is adequate according to your standards? 1B? 1M? 100K? $1.00? It is easy to “tax the rich (or business)” when they make a profit that exceeds what YOU believe is just, but is it fair? If soemone or some company makes more than I, should they be taxed more because of their success?

    Now let’s look at it in terms of percentage. If they made 2.7B as a result of risking 270B, then they made 1% profit. If they risked 27B, they made 10% profit. Which is it? Did they do phenomenally well? or marginally well? Was the 2.7B profit for IL alone, or was it for Caterpillar Global (in which case IL only gets a percentage)? Or does that matter?

    Last, IL should not get another dime of our tax money because IL pols have not proven themselves worthy of receiving addl. tax revenue. Our elected officials got themselves into this mess and it is up to them to get themselves out w/o raising taxes. Businesses and individuals should not be forced to bear the burden of elected pols screwing up year after year. Instead of rolling over on business, you should be screaming for blood from our elected goofballs, starting with Quinn.

  25. bobil March 28 at 10:06 pm

    Caterpillar has not asked for money from the state, They have merely observed that the state has passed a high tax increase without reducing costs. Cat broke the UAW by continuing to operate with management people in the 1990’s. Quinn on the other hand kisses up to the unions to get reelected by promising no pay cuts or layoffs. Quinn is so dumb that he does not see Cat expansion in other states at Illinois expense as a job loss. He is not smart enough to understand that if Illinois had a better business climate maybe some of this expansion could have been in Illinois. The CEO of Cat has offered to help Quinn figure out how to balance a budget., something business must do if they plan to stick around

  26. BigBob March 29 at 4:27 pm

    Illinois needs Cat more than they know. Cat provides tax revenue, direct and indirect jobs and helps keep to keep the Ill economy stable in spite of the tax and spend political leadership.
    Take a look at all of the industry, manufacturing and technical companies that have fled California for much of the same reasons leaving this state with a huge deficit compounded by the tax and spend politicians at every level of government. Unemployment is high in almost every trade and profession and it seems that most workers are taking cuts in pay and benefits, all except government and politicals who like being on the public dole.

  27. Pragmatic March 29 at 7:15 pm

    Some details on accounting:

    You aren’t taxed on earnings/sales (though if your state has a sales tax, your CUSTOMER can be…), you’re taxed on net profits.

    Let’s say that Illinois has a 20% corporate income tax. The company sells $100B of product, of which $10B is net income before taxes. Take off 20% for income tax, and you’re down to $8B in net income after taxes.

    Some people are attempting to say that the state of Illinois is taking more than the stockholders. Well, of that $100B in sales, let’s say that $30B went to pay the employees and officers. Will we hear that the employees (but NEVER the officers…) are robbing the company blind?

  28. Jeff March 29 at 9:36 pm

    If I know Quinn he’s already got plans for a huge public-works program building the 10 foot wall around our state to keep anymore taxpayers from leaving.

  29. Jeremy March 30 at 2:53 pm

    Didn’t CAT get stimulus money? I’ve read a bunch of comments about the ineptitude of the government. I agree. There’s a serious disconnect. The stimulus should have gone to small business. CAT acquired global assets using the tax payers dime. So now a state that is part of the country that provided stimulus for CAT to grow is “not favorable for business.” How exactly do we all account for that?

    http://www.bloomberg.com/news/2011-03-23/caterpillar-ceo-says-it-s-in-a-hurry-to-expand-products.html