“The once and future (economic) king (of the Midwest)”

October 10, 2013

Yesterday, the non-partisan Tax Foundation released its “2014 State Business Tax Climate Index.” Unsurprisingly, Illinois dropped…again.  Why does this matter?  Well, because Illinois is losing its competitiveness.  As the Tax Foundation points out in the index’s introduction, “the modern market is characterized by mobile capital and labor, with all types of business, small and large, tending to locate where they have the greatest competitive advantage.”  And, increasingly, businesses are looking elsewhere.

The Land of Lincoln now ranks 31st overall. That’s down 15 places from where we were before the 67% temporary tax hike in 2011.  Just to the east, Indiana enjoys a rank of 10 and job-creators are taking note.

Our Corporate Tax Rank is 47th.  Thanks to its current rate of 9 ½ percent (the flat rate of 7 percent coupled with the 2 ½ percent “personal property replacement tax” which corporations are required to pay), Illinois levies the fourth-highest corporate income tax amongst the states and, when coupled with the federal corporate tax burden, one of the highest in the industrialized world!

We have the nation’s second-highest unemployment rate and the moving company United Van Lines reported that we had the second-highest outbound migration last year (down from the number one spot in 2011).

With all these sobering statistics piling up, why would our politicians even consider the notion of yet another tax increase?  Rather than let the temporary tax increase expire, as promised, recently-introduced Constitutional amendments in Springfield (HJRCA 33 & SJRCA 40) seek to scrap the state’s flat income tax and implement a graduated, or “progressive,” one.  While the legislation does not include proposed rates, some folks have suggested an eight-bracket schedule that tops out at 11 percent!

As an example of how impactful a progressive tax system can be, look no further than North Carolina, where Gov. Par McCrory (R) recently signed legislation to do away with the Tar Heel State’s progressive tax in lieu of a flat tax.  The result?  The Tax Foundation predicts that, when fully implemented in 2015, this switch could catapult the state from 44 to as high as 17 on their index.  Sadly, Illinois may do the exact opposite.

Illinois would certainly tumble further down the Index if the state were to switch from a flat income tax to a graduated, or progressive, one.  Our dusty, tarnished reputation as the onetime economic engine of the Midwest can be achieved once again, but only if elected officials embrace public policy that will lead to prosperity rather than pushing us to the bottom of the heap.

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