IBJNews

Neighboring states gleeful over Illinois tax increase

Back to TopCommentsE-mailPrintBookmark and Share

While many states consider boosting their economies with tax cuts, Illinois officials are betting on the opposite tactic: dramatically raising taxes to resolve a budget crisis that threatened to cripple state government.

Neighboring states gleefully plotted Wednesday to take advantage of what they consider a major economic blunder and lure business away from Illinois.

"It's like living next door to 'The Simpsons' — you know, the dysfunctional family down the block," Indiana Gov. Mitch Daniels said in an interview on Chicago's WLS-AM.

But economic experts scoffed at images of highways packed with moving vans as businesses leave Illinois. Income taxes are just one piece of the puzzle when businesses decide where to locate or expand, they said, and states should be cooperating instead trying to poach jobs from one another.

"The idea of competing on state tax rates is . . . hopelessly out of date," said Ed Morrison, economic policy advisor at the Purdue Center for Regional Development. "It demonstrates that political leadership is really out of step with what the global competitive realities are."

By going where no other state dares to tread, Illinois could prove itself to be a policy pacesetter or the opposite — a place so dysfunctional that officials created a jaw-dropping budget crisis and then tried to fix it by knee-capping the economy.

Illinois faced a budget deficit of $15 billion in the coming year, equivalent to more than half the state's general fund. Officials warned that state government might not be able to pay its employees. It certainly would fall further behind in paying the businesses, charities and schools that provide services on the state's behalf.

To avoid that, the Democrat-controlled General Assembly voted to temporarily raise personal income taxes 66 percent, from 3 percent to 5 percent. Corporate rates will rise, too — from 4.8 percent to 7 percent — when Democratic Gov. Pat Quinn signs the measure.

The increase is expected to produce $6.8 billion a year for the four years it's in full effect. That should be enough to balance Illinois' annual budget and begin chipping away at a backlog of roughly $8 billion in old bills.

The tax move inspired a day of taunts across state borders and finger-pointing between parties.

"Years ago, Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, 'Escape to Wisconsin,'" Wisconsin Gov. Scott Walker said in a statement. "Today we renew that call to Illinois businesses, 'Escape to Wisconsin.' You are welcome here."

Illinois state Sen. Dan Duffy, a Republican, labeled the tax increase "the nuclear bomb of jobs bills."

There was even some carping from Illinois Democrats. Chicago Mayor Richard Daley predicted jobs will start trickling out of Illinois with little fanfare.

"Businesses don't have press conferences like this and announce they're moving 50 people out, 60 people out, 70 people," Daley said at an event in Chicago.

But Illinois' governor rejected the idea that the increase would allow other states to lure jobs away. "Lots of luck to them, but that's not going to happen," Quinn said at a news conference Wednesday.

Businesses look at more than taxes when making financial decisions, Quinn said. They also look at whether state government is stable and able to provide good roads and schools.

"It's important for their state government not to be a fiscal basket case," Quinn said.

A Wisconsin company seemed to prove his point.

Train-maker Talgo Inc. is threatening to leave Milwaukee because Wisconsin rejected federal funds for high-speed rail. Talgo still considers Illinois a strong possibility for its new home, despite the tax increase, said spokeswoman Nora Friend.

The tax increase "would not weigh in as a positive, but it's difficult to say whether it's the deciding factor," Friend said. "It would be one more factor that gets weighed in."

Illinois Democrats note that even after the increase takes effect, the 5 percent personal income tax rate will still be lower than many nearby states'.

The top personal rate in Wisconsin is 7.75 percent, for example, and Iowa's is 8.98 percent. Indiana and Michigan will have lower rates, however — 3.4 percent and 4.35 percent.

Bill Ecton, 54, owns Ecton's True Value Hardware in Robinson, Ill., just a few miles from the Indiana border. He was resigned to the fact that Illinois ultimately would raise taxes to repair the budget, but he said the taxes will take a toll.

"If I have to pay more to the state, it's money that I can't pay out in wages," Ecton said. "I'm not saying I'm laying people off, but maybe I'm going to look twice at adding another one."

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
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
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Why not take some time to do some research before traveling to that Indiana town or city, and find the ones that are no smoking either inside, or have a patio? People like yourself are just being selfish, and unnecessarily trying to take away all indoor venues that smokers can enjoy themselves at. Last time I checked, it is still a free country, and businesses do respond to market pressure and will ban smoking, if there's enough demand by customers for it(i.e. Linebacker Lounge in South Bend, and Rack and Helen's in New Haven, IN, outside of Fort Wayne). Indiana law already unnecessarily forced restaurants with a bar area to be no smoking, so why not support those restaurants that were forced to ban smoking against their will? Also, I'm always surprised at the number of bars that chose to ban smoking on their own, in non-ban parts of Indiana I'll sometimes travel into. Whiting, IN(just southeast of Chicago) has at least a few bars that went no smoking on their own accord, and despite no selfish government ban forcing those bars to make that move against their will! I'd much rather have a balance of both smoking and non-smoking bars, rather than a complete bar smoking ban that'll only force more bars to close their doors. And besides IMO, there are much worser things to worry about, than cigarette smoke inside a bar. If you feel a bar is too smoky, then simply walk out and take your business to a different bar!

  2. As other states are realizing the harm in jailing offenders of marijuana...Indiana steps backwards into the script of Reefer Madness. Well...you guys voted for your Gov...up to you to vote him out. Signed, Citizen of Florida...the next state to have medical marijuana.

  3. It's empowering for this niche community to know that they have an advocate on their side in case things go awry. http://www.youtube.com/watch?v=Lrst9VXVKfE

  4. Apparently the settlement over Angie's List "bundling" charges hasn't stopped the practice! My membership is up for renewal, and I'm on my third email trying to get a "basic" membership rather than the "bundled" version they're trying to charge me for. Frustrating!!

  5. Well....as a vendor to both of these builders I guess I have the right to comment. Davis closed his doors with integrity.He paid me every penny he owed me. Estridge,STILL owes me thousands and thousands of dollars. The last few years of my life have been spent working 2 jobs, paying off the suppliers I used to work on Estridge jobs and just struggling to survive. Shame on you Paul...and shame on you IBJ! Maybe you should have contacted the hundreds of vendors that Paul stiffed. I'm sure your "rises from the ashes" spin on reporting would have contained true stories of real people who have struggled to find work and pay of their debts (something that Paul didn't even attempt to do).

ADVERTISEMENT