By Julie Schmidt
A new report by the Tax Foundation shows Illinois’ competitive position would tumble if the progressive tax proposal on the state’s ballot in November is adopted. According to the nonprofit group, Illinois’ business competitiveness ranking would plummet to 47th from 36th, ahead of only New Jersey, California, and New York.
Gov. J.B. Pritzker’s proposed tax scheme would raise tax rates on all individuals making over $250,000 to as high as 7.99 percent from today’s flat rate of 4.95 percent.
In addition, Illinois’ proposed corporate tax rate, totaling 10.49 percent, would rise to the second-highest in the nation. That rate is made up of a 7.99 percent base rate plus what’s known as the Personal Property Replacement Tax (PPRT) of 2.5 percent. Illinois small businesses – partnerships and S corporations – also pay an additional PPRT, but at a lower 1.5 percent.
The Tax Foundation says Illinois “would have some of [the] country’s highest income taxes (individual and corporate), particularly on businesses. That’s of particular concern in a state that has struggled to stem the tide of business departures, as the governor himself has noted, but it’s only one of many issues raised by the proposal.”
The effect of those tax hikes would be to push Illinois’ competitive position on individual taxation to 40th from 13th and the state’s corporate tax position to 39th from 36th. Overall, the state would fall by 11 spots to 47th nationally.
Included in the Tax Foundation’s report were 12 reasons why the progressive tax would hurt the state’s competitiveness. The bulleted list is here:
- The proposal would create some of the highest rates in the country.
- Illinois’ neighbors are making their tax rates more competitive, not less.
- These higher taxes would have a significant impact on Illinois businesses.
- The cost of high rates has never been higher.
- Business rate parity makes little sense.
- The new rates include highly unusual “recapture” provision.
- The proposal creates a significant marriage penalty.
- Tax burdens will rise due to “bracket creep.”
- There is no guarantee that rates will not rise in the future.
- The numbers do not add up.
- The proposal eliminates the best feature of Illinois’ tax code.
- Illinois’ business competitiveness will decline.
To read the Tax Foundation’s full report, click here.
The report’s final warning shouldn’t be ignored: “Were the proposed graduated-rate income tax adopted, Illinois would trail its peers in just about every aspect of its tax code. If businesses and individuals are leaving the state now, these policies can only make the problem worse.”
Read more about the progressive income tax: