State of the Week: Illinois Lawmakers Undermine Small Business Growth and State’s Economy with Tax Hikes

By at 14 July, 2017, 9:56 am


by Raymond J. Keating-

Small Business Policy Index 2017: Illinois ranked 29th among the 50 states.

SBE Council’s “Small Business Policy Index 2017” ranks the 50 states according to 55 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2017: Illinois ranked 25th among the 50 states.

SBE Council’s “Small Business Tax Index 2017” ranks the states according to 26 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.

Illinois: Chasing Away People and Opportunity

Illinois state lawmakers are becoming quite adept at creating a hostile policy climate that chases away opportunity and individuals. In fact, Illinois has become a top exporter of people to other states. Unfortunately, a big tax increase just passed by lawmakers will make the state even more hostile to entrepreneurship and workers.

After factoring out births, deaths and international immigration, one arrives at movement of people between the states (net domestic migration). In 2016, Illinois was the second largest net loser of population to other states. Only New York was worse. The same went for the period of 2010 to 2016.

Rather than trying to make the state a more appealing place to live, work, and startup and run a business, however, state lawmakers decided to make it costlier early this month. On July 6, Governor Bruce Rauner’s veto of a major tax increase was overridden by the Illinois General Assembly. Retroactively to July 1 of this year, the state’s personal income tax rate was increased from 3.75 percent to 4.95 percent, and the corporate tax rate rose from 7.75 percent to 9.5 percent.

Indeed, this tax increase makes the start far less competitive. Consider, for example, that on the SBE Council Small Business Tax Index 2017, which was published just last month, Illinois had ranked 25th among the 50 states. With these changes, the state’s ranking drops all the way down to 34th.

By the way, as the Chicago Tribune reported on July 8, “The state still has unpaid bills hovering around $15 billion, and that number could rise as more come in with the fog of the record-setting budget impasse lifting. There are cash flow issues that mean covering monthly expenses remains a challenge, at least for a while. And a whopping $130 billion shortfall in government worker pension systems has not been addressed, with the options for doing so limited by the courts… Meanwhile, at least one Wall Street agency warns the budget fix may be too little, too late, signaling that the state’s credit rating may still be cut to junk status due to the broad financial problems that are still unsolved.” No, tax increases are not the answer.

Some have said that Illinois has become the Greece of the United States. And like Greece, the source of the problem is government spending. Higher taxes only further fuel the problem, while making the state even less appealing to individuals, families, entrepreneurs, businesses and investors.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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