ILLINOIS NEWS NETWORK
Illinois imposes a higher tax burden on its businesses than most of its Midwest neighbors, according to newly released economic data that some observers say proves the state lags in attracting businesses.
An April Anderson Economic Group study ranked the tax burdens on businesses for all 50 states and the District of Columbia. Illinois businesses paid 9.4 percent of their profits in taxes to the state in 2015, while businesses in most of Illinois’ neighboring states paid percentages in the range of 7 to 8.7 percent, according to the study.
Only Minnesota, with a rate of 9.7 percent, was higher in its business tax burden.
“Taxes are certainly not No. 1 on the list when businesses are considering location,” Jason Horwitz, a senior consultant with the Anderson Economic Group who helped to prepare the report, told Illinois News Network.
But Horwitz pointed out that the state’s corporate income tax, at 7.75 percent, is among the highest in the nation. This might not be a major factor in a business’s decision to locate in the Chicago area, which has a great deal of talent and infrastructure, but it can bear on businesses considering to locate their operations further south in Illinois, he said.
A lower corporate tax in a neighboring state could lure a business to locate there instead of the southern areas of Illinois, Horwitz said, which is indicative of downstate Illinois’ stagnant job growth.
The study also makes clear that of the taxes imposed on businesses around the nation, the corporate income tax is a smaller burden than two other taxes. Topping the state tax burdens for businesses is the property tax and general sales tax.
A recent blog post by Illinois Rep. Keith Wheeler, R-Aurora, said that Illinois businesses are moving out of state or closing down due to high property taxes in the state. A report by the Tax Foundation, a nonprofit tax policy institute based in Washington, found that on a ranking of states with the best business climates, Illinois was 46th based on overall property tax burden. A recent WalletHub study found Illinois had the second highest property taxes in the country.
The small business climate in Illinois is chock-full of uncertainty, according to Wheeler, who expressed concern that state legislators are proposing legislation that is hostile to business.
“Small business has been called the backbone of the American economy for good reason,” the lawmaker said in a recent blog post. “Small businesses create more than two-thirds of the net new jobs and employ more than half of the country’s workforce.”
An April briefing report by the Illinois Commission on Government Forecasting and Accountability, which was created by the General Assembly to study economic trends, found a dichotomy in the state’s economic performance of late. Although unemployment fell to just under 5 percent in March, nonfarm payroll employment also declined for three straight months, while recent gains in manufacturing jobs have dropped, the report said.
And eight of the state’s metropolitan regions reported a loss in payroll jobs between March 2016 and March of this year.
“Illinois is likely to continue to lag both the nation and Midwest with widely divergent trends in its metro areas as population declines and manufacturing employment weakens and jobs move out of state,” the commission’s report said.
Horwitz emphasized that the Anderson report’s numbers should be taken in a nuanced manner. North Dakota and Wyoming are shown to have high business tax burdens, but that is due more to geography and natural resources, he said, noting that the two states have severance taxes on oil production.
A key point to take away from the study is that businesses pay a variety of taxes far beyond the corporate income tax, Horwitz said.
For many business owners in Illinois, the reports on Illinois’ tax burden numbers ring true.
“The tax burden is so severe here in Illinois and so intense and, frankly, unfair that it retards job growth,” Al Panico, the president and CEO of The Line Group Inc. in Arlington Heights, told Illinois News Network.
Panico, whose company manufactures metal parts for multiple industries, sees a direct correlation between the state’s higher business tax burden and businesses moving out of the state. The corporate income tax can add thousands of dollars to businesses’ annual tax burdens, according to Panico.
“There are other reasons businesses move out of Illinois as well,” he said, citing high workers’ compensation rates paid by companies, pension fund financial burdens and other types of taxes, such as Cook County’s soda tax.
The state needs to get a balanced budget, come up with a way to cap property taxes and reform the pension system to cut costs, Panico said.
“The first thing they need to do is workers’ compensation reform,” he said.