Indiana officials hope to capitalize on Illinois’ tax woes

Back to TopCommentsE-mailPrintBookmark and Share

Indiana Gov. Mitch Daniels had difficulty containing his enthusiasm in the week since legislators in neighboring Illinois socked corporations with a huge tax increase.

Faced with a daunting $13 billion budget deficit, Illinois lawmakers opted to raise personal and corporate income taxes—a move Daniels and state economic development officials welcome with open arms.

They seek to capitalize on the opportunity to tout Indiana as a less-expensive and more business-friendly option for companies that may find the higher cost of conducting business in Illinois too much to bear.

But will the tax increases be enough to sway some companies in the Land of Lincoln to relocate to, or expand in, the Hoosier state?

John Ketzenberger, president of the Indiana Fiscal Policy Institute, thinks the advantage is marginal.

“Indiana does stand to gain if it reduces its corporate income tax,” he said. “But that takes some time, and it’s hard to do that right now, with the Legislature counting every penny with the recession.”

To ensure Indiana maintains a competitive edge on the job-creation front, Sen. Brandt Hershman, R-Lafayette, wants to lower the state’s corporate income tax to 5 percent.

Hershman, who chairs the Senate Tax Committee, said Indiana already has a relatively low cost of doing business, but that the corporate income tax is seen as a hindrance to job creation because it is one of the highest in the Midwest.

Indiana’s corporate income tax rate of 8.5 percent is just a percentage point lower than Illinois’ new rate of 9.5 percent. And Illinois legislators insist the tax hike will be temporary and expire after four years.

Still, Daniels wasted no time chiding the tax hike, likening Illinois to a popular animated television family.

“You guys are nothing if not entertaining over there,” he said on the "Don and Roma" show on WLS-AM in Chicago. “It’s like living next door to the Simpsons—the dysfunctional family down the block.”

Illinois lawmakers on Jan. 12 voted to raise the corporate income tax rate by 30 percent and the personal income tax rate by a whopping 66 percent, pushing it to 5 percent.

The tax increase has vaulted Illinois into the ranks of states with the highest corporate rates, according to the Washington, D.C.-based Tax Foundation. It now has the third-highest rate, up from the 21st-highest previously.

While Illinois' corporate tax rate exceeds Indiana's, Indiana has a higher rate than neighbors such as Ohio, Kentucky, Michigan and Wisconsin.

And Hoosiers often pay more in income taxes than Illinois residents even when taking into account Illinois’ new rate of 5 percent.

Indiana’s personal income tax rate is 3.4 percent. But add a county option income tax, which isn’t assessed in Illinois, and the combined rate in Indiana often tops 5 percent.

COIT rates fluctuate among counties, but the average rate is about 1.4 percent. It’s even higher in Marion County, at 1.75 percent.

Even so, Secretary of Commerce Mitch Roob says that the overall cost of  conducting business in Indiana is less, when accounting for more than just taxes.

“We’ve had a flood of e-mails [from business owners] who have asked us to come visit with them,” he said. “One guy sent a note that said the new slogan in Illinois is ‘Come for the corruption, stay for the taxes.’”

Nationally, Indiana ranks 10th-best in terms of its tax climate, while Illinois slipped from 23rd to 35th, according to the Tax Foundation.

William Rieber, a professor of economics at Butler University’s College of Business, expects any benefits for Indiana will be reaped gradually rather than immediately. That’s because plans involving locations and investments are made well in advance of when they’re executed, he said.

But high taxes can be detrimental to a state, and even more so based on its location, Rieber said.

“California can get away with it with the weather, and New York [because it's a] financial center,” he said. “But, in the Midwest, we don’t have as much going for us, and we have to be more careful.”


  • that won't stop them
    brm, the amount that the IL legislation raised corporate taxes is bigger than what businesses will see in the way of property taxes. Also, most counties in this state go a little abatement crazy when it comes to attracting new businesses to their area. It gets pretty ugly when two neighboring counties are vying for the same company. The tax abatement process is pretty easy to get done and you can make empty promises and still get the abatement.
  • property taxes
    Also, the article did not mention that Indiana assesses a Business Personal Property tax, whereas Illinois does not.

Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. I am a Lyft driver who is a licensed CDL professional driver. ALL Lyft drivers take pride in providing quality service to the Indianapolis and surrounding areas, and we take the safety of our passengers and the public seriously.(passengers are required to put seat belts on when they get in our cars) We do go through background checks, driving records are checked as are the personal cars we drive, (these are OUR private cars we use) Unlike taxi cabs and their drivers Lyft (and yes Uber) provide passengers with a clean car inside and out, a friendly and courteous driver, and who is dressed appropriately and is groomed appropriately. I go so far as to offer mints, candy and/or small bottle of water to the my customers. It's a mutual respect between driver and passenger. With Best Regards

  2. to be the big fish in the little pond of IRL midwest racin' when yer up against Racin' Gardner

  3. In the first sentance "As a resident of one of these new Carmel Apartments the issue the local governments need to discuss are build quality & price." need a way to edit

  4. As a resident of one of these new Carmel Apartments the issue the local governments need to discuss is build quality & price. First none of these places is worth $1100 for a one bedroom. Downtown Carmel or Keystone at the Crossing in Indy. It doesn't matter. All require you to get in your car to get just about anywhere you need to go. I'm in one of the Carmel apartments now where after just 2.5 short years one of the kitchen cabinet doors is crooked and lawn and property maintenance seems to be lacking my old Indianapolis apartment which cost $300 less. This is one of the new star apartments. As they keep building throughout the area "deals" will start popping up creating shoppers. If your property is falling apart after year 3 what will it look like after year 5 or 10??? Why would one stay here if they could move to a new Broad Ripple in 2 to 3 years or another part of the Far Northside?? The complexes aren't going to let the "poor" move in without local permission so that's not that problem, but it the occupancy rate drops suddenly because the "Young" people moved back to Indy then look out.

  5. Why are you so concerned about Ace hardware? I don't understand why anyone goes there! Every time ive gone in the past, they don't have what I need and I end up going to the big box stores. I understand the service aspect and that they try to be helpful but if they are going to survive I think they might need to carry more specialty parts.