Illinois increases income and corporate taxes while residents suffer

You can call it a 66 percent increase in taxes – it is – or an increase in the personal income tax from 3 percent to 5 percent and corporate taxes from 3.25 percent to 5.25 percent. Either way, the State of Illinois is taking a huge gamble.

Will residents and companies stick around or will they bolt? Indiana is expecting and influx of migrants from President Obama’s home state and New Jersey Gov. Chris Christie (R) is planning on taking the next flight to O’Hare to pitch the Garden State as one who would welcome companies ticked off at the irresponsible move made by the Illinois state legislature and Democrat governor.

If a firm believer that people will flat out move to a different region or state to make improvements in their own lives. Don’t tell me people don’t move away from friends and family due to the cost of living.

I’ve got multiple friends, some with kids and some without, who have sold homes and moved away from where they have lived for decades within the last 18 months. The reasons? Taxes, the cost of living, school quality, activities and climate were the top five reasons in that specific order.

It’s even easier for companies to make a move. Certainly, there is a large initial investment when moving operations or manufacturing from state A to state B, but when you can prove the value of the move in a basic Excel spreadsheet and show a return on the investment within five to 10 years, guess what happens?

They move.

The state has chosen to face reality by raising taxes, but there seems to be absolutely no discussion about cutting the size of Illinois’ monstrous government. As a matter of fact, state leadership is proud to point out they will be forced to limit spending increases a modest 2 percent for the next few years.

As it turns out, those increases are “mandated” by union contracts so those costs are off the table of course.

Steve Gilbert at Sweetness & Light points us to a New York Times opinion post that never even bothers to mention the 66 percent figure – it is 66 percent – and won’t even point out that if you paid $2,100 in state income taxes last year, you’ll be paying $3,500 this year.

The Times actually points out California, New Jersey and New York having a higher tax rate than Illinois. Yet, they completely ignore the fact those states – with their super-high tax rates – are flat out broke too.

How come we conservatives have been screaming about reality for years and years and just now people are coming to “face reality?”

6 replies
  1. JollyRoger
    JollyRoger says:

    Of course they raised taxes- as Malloy will here in CT.  They've got to protect the state's bond rating so they can borrow more money and play the Ponzi game for a few more elections- and by then hopefully things will improve and they can claim credit for the upturn- or blame Bush for the fact that we had a crash…

  2. Lynn
    Lynn says:

    Steve, you are right. JollyRoger, you are right. Malloy has already showed little inclination to cut anything or anything that is a real cut (like public sector jobs). Younger business owners and workers WILL move. Some of us, who have too deep roots would like to move, but probably will just pull the belt in and hunker down. I guess we are all still waiting for that HOPE and CHANGE.

  3. Tracy
    Tracy says:

    I agree with JollyRoger, look not only for higher taxes, but additional environmental regulations, social programs, and burden on business as well. Steve, if a state property tax is implemented, You will now know someone else who is moving out.

  4. joe_m
    joe_m says:

    Back in the good old days before CT had an income tax, we had more corporate headquarters in CT than anyplace except NYC.

    So where are UPS (Atlanta, GA), GTE (Verizon – Atlanta, GA), Coca Cola NY (Hawthorne, NY now CCE Atlanta)? They were all in CT.

    That's the result of higher taxes. Anyone really believe UTC is going to stick around?

    I know I'll be moving as soon as I can. Just 1 left in high school and then, see ya. 

  5. eliminatecit
    eliminatecit says:

    Why Illinois' CIT increase will raise prices, lower wages and force companies to relocate…

    There have been some articles and comments this week suggesting that Illinois will not lose employers because of the hike in their CIT from 4.8% to 7.0%.  The math shows otherwise…

    Suppose I am a company located in Illinois with all of my manufacturing and employees located right next door to my major customer, Caterpillar. I have 20% pretax margins, pay my full 35% Federal and 4.8% State income tax which puts my after-tax margin at 12.0%.  Because Illinois raised the State tax rate to 7.0%, I will need to raise my prices by 3.8% to earn the same after tax profits.  If Caterpillar rejects my 3.8% price increase, then I must cut wages and other expenses to maintain my same profits.  Either way, there will be wage pressure on my employees and price pressure on my customers. 

    And since companies with no facilities in Illinois must also pay taxes on the profits that they derive from sales inside of Illinois' borders, they must also raise their prices to all Illinois customers.  Suppose my company is based in Texas where there is no State Corporate Income Tax and I sell to Caterpillar plants in Illinois and Texas.  To generate the same level of profits on each sale, I must charge the Illinois customer 12.0% higher prices than my Texas customer.  Said another way, Texas customers get to buy my products at a 10.8% discount to Illinois customers. 

    This helps to explain why Caterpillar recently put a new operation in Texas and not Illinois.  Expect the decisions to not put new operations in Illinois and to move them from Illinois to accelerate.  I wonder how long it will be before one of the major trading floors moves from downtown Chicago?

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