Where could the CME move?

After hearing the threat that the CME Group might move out of Illinois due to the new higher corporate tax rate (and now CBOE is making noises as well), I thought I would explore what reasonable possibilities were available to the exchange.

I started by Googling state corporate income tax rates to see how bad the rate in Illinois was compared to surrounding states, figuring if the CME Group wanted to remain close to its namesake, it would find a bordering state. Illinois has a flat rate of 9.5%, but that includes something called a replacement tax of 2.5%, which I'm not sure applies to all companies, but probably applies to the CME Group, which is a financial institution.

Wisconsin seems a logical choice with its new hard nosed Governor Scott Walker who loves giving businesses tax breaks while concurrently breaking public worker unions. Wisconsin, according to my source, has a flat rate of 7.9%. Many traders have summer homes in southern Wisconsin, so perhaps that 1.6% savings would be worth it, and hey, Friday nights are great for fish fries.

And Indiana is a short hop from Chicago. Who doesn't love Gary, Indiana, afterall, a song was written about it. Indiana's corporate rate was a flat 8.5%, which meant a 1% savings. Hardly enough to move everyone across the state line, unless they wanted to save on cigarette and gasoline taxes as well.

Iowa, which is a bit of a drive, came in at a sliding scale, as low as 6% and as high as 12%. No doubt the CME Group would be in the higher tax brackett, but maybe not. I'm not sure how good it would be for traders, however it might appeal to Iowa farmers who have long begrudged LaSalle Street traders, after all, they wouldn't have to drive their tractors so far to protest.

Those are the closest states, although other Midwest states might be plausible: not Minnesota with a 9.8% tax rate, but Michigan with a 4.95% rate seems downright reasonable. And I'm told Detroit has alot of open buildings.

Then I thought: if they were going to move, why not go all the way and find a state that has no corporate tax rate? Surely there has to be some of those, and it turns out, there are.

Washington State surprised me. Wonder why Bill Gates doesn't move. But a strange thing happened several years ago: Boeing Co. moved it's corporate headquarters from Washington State to Chicago. I can see the building from my window...and I'm sure CME Group Chairman Terry Duffy can as well. So why move to Illinois? I seemed to recall that it was centrally located, business friendly and they were better able to recruit. And it didn't rain so much.

Other states without corporate taxes: South Dakota (recruiting might be hard), Wyoming (good skiing but same problem as South Dakota), Florida (too many hurricanes, but home to many traders) and Nevada. And my own feeling is Nevada is a non-starter; can you imagine the public relations nightmare of the largest futures exchange in the world moving to a state built on gambling?

So if the CME Group is serious about moving, they need to review all the possibilities. A savings needs to cover the expense of moving, finding new people (who won't move to Gary), and of course changing the name. Chicago (the 'C' in CME ) would have to go, and that would mean new branding expense. Boy, now that 1.6% savings Wisconsin would give doesn't look like so much. Further, the Illinois rate is slated to drop back to 5.25% (not including replacement tax) in 2014.

 So what's the point other than leaning on the state and city of Chicago for tax breaks, which no doubt will be coming. And that, as they say, is exactly the point.

About the Author

In her many years covering the futures industry Ginger has interviewed some of today's best global hedge fund and commodity trading advisors. Ginger received a master's degree in journalism at Northwestern University's Medill School of Journalism and a bachelor’s in communication arts from the University of Wisconsin – Madison

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