Illinois Senators Try for a Third Time

February 6, 2017

Tomorrow, the Illinois Senate is expected to vote on the third version of a compromise promise to help end the state’s almost two-year-long budget crisis. Yet again, the proposed compromise makes Illinois’s tax climate less competitive.

The newest version of the plan includes a few key components:

  • Individual income tax rate is increased to 4.99 percent
  • Corporate income tax rate is increased to 7 percent (plus the 2.5 percent personal property replacement tax)
  • Expands the sales tax base to include a few services, such as storage and amusement
  • Creates a statewide payroll tax, called the “business opportunity tax”
  • Repeals the state’s franchise tax

The new version removes the previously discussed statewide sugary beverage tax, and has a lower individual income tax rate than previous versions.

The business opportunity tax is the most unique part of this proposal. Only one state (Nevada) has a statewide payroll tax that isn’t related to unemployment insurance. The proposal in Illinois would tax employers a flat fee based on their total payroll in the state.

Business Opportunity Tax

Total Illinois Payroll

Tax Amount

>$100,000

$225

$100,000-$250,000

$750

$250,000-$500,000

$3,750

$500,000-$1,500,000

$7,500

$1,500,000+

$15,000

According to the Capitol Fax in Illinois, 100,000 businesses in the state have payroll of less than $100,000, putting a large burden on a number of very small employers. And this would be on top of the newly-increased 9.5 percent corporate income tax rate, the fourth highest rate in the country.

Similar to the previous two versions of this plan, Illinois’s ranking on the State Business Tax Climate Index would fall. Illinois’s overall score would fall from 23rd to 28th, while the corporate income tax component would fall from 26th to 42nd.

 

Current

Proposal

Total

23

28

Corporate

26

42

Individual

10

11

Sales

35

34

Property

46

41

These scores come with a very large caveat. The State Business Tax Climate Index does not include any variables regarding a statewide payroll tax, since they are not common among the states.

Repealing Illinois’s franchise tax would be a step in the right direction, but other components of this updated proposal should continue to give Illinois policymakers pause. Creating a brand-new statewide payroll tax and raising the state’s corporate income tax rate to 9.5 percent would be a step in the wrong direction.

Information on the previous versions of the compromise:


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