As Illinois legislators gather in Springfield for a special session called by Governor Pat Quinn (D), a TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation expert warned that Quinn’s proposal to increase individual and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es would sharply reduce Illinois’s state business tax climate ranking, moving it from the top half to the bottom half in the nation when it comes to “business-friendliness.”
Illinois has high property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es and high sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. es. Currently, those taxes are partly offset by a low personal income tax. With a 50% increase in the income tax rate, Illinois legislators would give up the state’s one tax climate advantage.
Quinn’s plan would raise the personal income tax rate from 3% to 4.5% and the corporate income tax rate from 7.3% to 9.7%. The plan would also increase the personal exemption on the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. from $2,000 to $3,000.
Quinn’s proposed new top corporate tax rate would be the fourth highest in the country, behind only Minnesota, Pennsylvania, and the District of Columbia.
The Tax Foundation annually produces a State Business Tax Climate Index, which measures how well a state’s tax system encourages investment by maintaining a broad tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. and low rates. Based on current tax law, Illinois ranked 23rd out of 50 states for business-friendliness at the beginning of this fiscal year. With Quinn’s plan in effect, Illinois’s ranking would have sunk to 31st.
Illinois should also be criticized for claiming that its corporate rate is lower than it actually is. Illinois imposes a 4.8% corporate income tax, plus a 2.5% ‘replacement tax,’ for a total of 7.3%. Quinn’s plan would raise that 4.8% rate to 7.2% while retaining the replacement tax, for a total rate of 9.7%.
Corporate tax burdens are ultimately borne by individuals, as businesses pass these costs onto their employees, customers and shareholders. A growing body of scholarly evidence finds that increasing corporate taxes leads to depressed wages as businesses try to stay competitive. The proposed corporate tax increase would hurt Illinois’s ability to attract investment and create jobs.Share