Illinois’ New Tax Proposal

January 11, 2011

Illinois’ legislature is currently considering an alternative to the initial tax increase proposed last week. Instead of pushing for a 75% increase in the personal income tax and a 49% increase in the corporate income tax, this proposal would raise the individual income tax rate to 5% and the corporate rate 9.5%. While this proposal is more modest than the first, it still hurts the competitiveness of Illinois when it comes to maintaining and attracting new business.

If this passes, Illinois will have the fourth-highest corporate income tax in the country behind only Minnesota and Pennsylvania. The corporate income tax has been shown to be among the most damaging taxes in terms of economic growth.

The individual income tax is often overlooked as a factor in business decisions. This is unfortunate because a large amount of business income is actually filed through the individual income tax. In raising the rate to 5%, Illinois would have the one of the highest flat individual income tax in the country.

In solving their budget problems, Illinois needs to do something that it has not done in a long time and that is look to the future. The governor and the legislature need to look past the next day, week and month and consider the long-term effect of their policy decisions.

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