January 26, 2012

The Tax Foundation’s 2012 State Business Tax Climate Index was recently released, revealing Illinois saw the biggest downward shift of any state. The nationally recognized and widely respected non-partisan organization reports that Illinois fell a whopping twelve places in the rankings, from 16th place in 2011 to 28th place in 2012. 

Though the state’s 67 percent income tax hike undoubtedly contributed to the drop, Illinois is a high-tax state in other areas. According to the Tax Foundation, the state ranks as the fifth worst in business taxes, the seventh worst in unemployment insurance taxes and the sixth worst in property taxes. Though some of Illinois’ neighboring states were ranked more poorly in these areas, when comparing rates in all tax categories to those of our neighbors, Illinois takes the cake.

The Tax Foundation highlighted the important role taxes play when it comes to a state’s ability to attract and retain employers. Echoing the concerns of Republican lawmakers, the report noted that, “States do not institute tax policy in a vacuum. Every change to a state’s tax system makes its business tax climate more or less competitive compared to other states, and makes the state more or less attractive to business.” The Tax Foundation emphasized that when higher taxes cut into profits the cost is passed on to consumers—through higher prices, employees—in lower wages and fewer jobs, or shareholders—in lower dividends or share value.

The Tax Foundation report reinforced this, noting, “evidence shows that states with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth. “ The Tax Foundation pointed to former Gov. Rod Blagojevich’s maligned gross receipts tax (GRT) proposal, emphasizing that hundreds of millions of dollars in capital investments in Illinois were halted until the GRT bill was overwhelmingly defeated.

Additionally, the Tax Foundation noted that while a state’s tax burden is not businesses' only consideration when it comes to establishing a presence, it is undoubtedly a compelling one. The report pointed to the recent business tax credits that were approved by Illinois lawmakers in late 2011. The costly credits were negotiated after desirable Illinois companies, including Sears and the Chicago Mercantile Exchange, threatened to leave the state citing the burdensome cost of the state’s new corporate tax increase.

Senate Republicans have been actively advocating for state budget reforms and spending cuts as a way to meet Illinois’ fiscal obligations and roll back the Democrat’s 67 percent tax increase as scheduled. The Tax Foundation notes that “unlike changes to a state’s health care, transportation, or education system…changes to the tax code can quickly improve a state’s business climate.”