Pritzker’s budget has $600 million in business tax proposals

Pritzker wants $589 million in business-focused tax hikes. That would endanger Illinois’ long-term economic stability.

Gov. J.B. Pritzker wants roughly $589 million in new taxes that primarily affect businesses to fund his proposed record-high $56 billion budget.

The governor seeks a first-ever usage-based fee on social media platforms, an extension of the cap on net operating loss deductions and $120 million in a new casino tax.

Business tax policy plays a significant role in long-term economic performance. Illinois has faced persistent domestic outmigration and firm relocation, contributing to a shrinking tax base and slower growth compared to much of the country.

The state already struggles with competitiveness, with the fifth-slowest-growing economy in the nation since 2019. More taxes risk further hurt long-term growth.

Taxing your social media use

The most novel proposal targets social media. Companies would be charged based on monthly Illinois users, generating an estimated $200 million a year for the state. Other states have considered similar taxes, but none has adopted one to date. Such taxes could come with fiscal and legal challenges.

Pritzker says companies would not be allowed to pass the new fees directly to consumers, but targeted platform taxes are rarely absorbed entirely by businesses. Social media platforms might offset the cost indirectly by enacting higher advertising rates, reducing revenue shared with content creators or making the platforms more expensive for users.

Costlier advertising or more paywalls hurts small businesses that want to buy digital ads and consumers who might have to pay more for certain features on social media sites.

The only way for Illinois to grow is to lower the state’s tax burden, says Illinois House Republican Leader Tony McCombie, R-Savanna. “When you impose a tax, it always gets passed to the end user,” McCombie told The Center Square.

The proposal also threatens legal costs for the state. Legal challenges are stacking up after Chicago introduced a similar social media surcharge.

The proposal may face constitutional challenges, says Amy Bos, vice president of government affairs for NetChoice, a trade group for large technology firms. She cites a 1983 U.S. Supreme Court decision that blocked a Minnesota state tax on newspapers for paper and ink purchases beyond a $100,000 yearly threshold.

Net operating loss deduction

The other major business tax increase is the proposed extension of the state’s cap on the deduction for net operating losses. That cap is projected to raise $269 million in fiscal 2027.

The cap, enacted in 2021, was set to expire at the end of the 2026 tax year, which would have allowed businesses a higher deduction. The governor has proposed phasing in higher deduction limits, letting companies deduct up to 20% of their current year income in 2027, with that gradually increasing to 80% in later years.

These caps are designed to smooth tax burdens over business cycles. They allow firms to offset profitable years with prior losses, which helps reduce fiscal uncertainty, promote investment and help smaller companies stabilize employment during downturns.

Limiting these deductions raises effective tax rates on companies recovering from losses. That’s especially harmful to new growth-oriented businesses and startups, as these businesses can lose money for years before seeing profits. Amazon, Tesla, Netflix, Airbnb and Uber all posted significant losses in their early years before turning profits. Restricting net-operating-loss deductions increases tax uncertainty and may discourage expansion and job creation in a state already facing competitiveness challenges.

Casino taxes

The governor also proposes increasing taxes on table games for casinos outside Chicago. The marginal tax rate range for table games would increase to 15% to 50%, compared with the current range of 15% to 20%.

Such a hike raises the tax burden on casino operators.

Gambling taxes were already increased in the previous budget, when the state added an extra 25 cents to 50 cents per sports betting wager. That increase followed a reported decline of 15% in the number of wagers placed, illustrating how higher taxes can dampen economic activity.

Potential effects

While such tax increases raise revenue in the short term, increasing costs to business risks further undermining economic competitiveness.

Illinois would benefit from pro-growth reform.  That includes reducing the state’s overall tax burden, removing unnecessary regulation, reforming occupational licensing, extending apprenticeship opportunities and opting into the Federal Scholarship Tax Credit Program.

The state already struggles with slow growth. Long-term fiscal stability depends on expanding the tax base, not discouraging investment with higher taxes.