This Op-Ed appeared on Reboot Illinois on Wednesday, February 13, 2013.
LET THE TEMPORARY TAX HIKE EXPIRE
Most of us can remember the time, not that long ago, when Illinois was the economic powerhouse of the Midwest. With a highly trained workforce, great educational institutions, a vibrant metropolitan center and an indomitable “can-do” spirit, the Land of Lincoln became a desirable home for dozens of Fortune 500 companies and thousands of smaller employers, all of whom provided good jobs and livelihoods for families across Illinois.
Our flat 3% personal income tax rate along with a reasonable 4.8% corporate income tax rate gave us a competitive advantage over higher tax neighboring states like Wisconsin and Iowa. Even as a highly litigious and pro-union state, Illinois could couple its tax rate with its built-in attributes to make a strong case for employers and employees to locate and expand here.
Unfortunately, the dark clouds of deficits brought on by fiscal mismanagement and over-spending gathered over the past decade, manifesting themselves in the form of unsustainable pension liabilities and unpaid bills. In 2011, Governor Quinn led legislators in passing a 67% “temporary” increase in the income tax, pushing the personal income rate up to 5% and the corporate income rate to 7%. The justification provided for the state’s largest tax hike was to pay down Illinois’ unpaid bills and begin addressing pension costs—noble goals. Unfortunately, two year later there are still over $9 billion in unpaid bills and the entirety of the revenue from the tax increase was swallowed up by escalating pension payments.
At the time of passage, Senate President John Cullerton said: “A portion of this tax (increase) is going to expire in four years… This, again, is a temporary tax.” However, “temporary” tax increases in Illinois have become permanent before and plenty of Illinois politicians would like nothing more than to hold on to all the taxpayers’ money they are currently collecting. What those lawmakers must realize is that Illinois cannot afford to keep its income tax hike because it lessens our competitiveness with other states, while also discouraging entrepreneurship by creating a significant barrier to starting a business. As the Commission on Government Forecasting & Accountability (COGFA) stated in their January 2013 report, “(T)emporary hikes in the personal and corporate income tax rates have hurt Illinois’ competitiveness.”
Illinois must allow the income tax hike to sunset so it can regain one aspect of its competitive advantage as we compete with our neighbors and states throughout the US for jobs and employers. Indiana, hardly a traditional economic powerhouse , has remade itself under former Gov. Mitch Daniels’ leadership, restoring fiscal discipline, lowering taxes and embracing business-friendly policies to attract jobs. According to the Tax Foundation, Indiana ranks ahead of Illinois in every measure of tax climate, outpacing us in the sales, personal and corporate taxes, while receiving a rating of 11th overall versus Illinois ranking of 28th. Wisconsin, our neighbor to the north, still has a relatively high tax burden; however their collective bargaining and other business-friendly reforms are making it more attractive to job creators. And these reform-minded states are not standing still in the competition for jobs. Both Indiana and Wisconsin are poised to further reduce tax burdens on corporations and individuals this year. With all this state has to offer, Illinois should be out-performing its neighbors, but instead it is falling further behind these states because of bad policies implemented by poor leaders.
The many positive attributes of Illinois–its quality of life, agricultural assets, and logistical strengths–are all desirable to employers and families. Yet, Illinois’ strengths are obscured from view by the cloud of dismal financial realities it faces. Our leaders need to get busy helping those strengths shine through. A good first step would be to correct one of those poor decisions and allow the income tax hike to sunset. This is the first measure in telling employers and families that Illinois is serious about regaining its rightful place at the forefront of economic activity in the Heartland, producing new jobs and opportunities for its residents.
David W. From is the Illinois State Director of Americans for Prosperity.