How Illinois can prepare for the Trump tax reforms

How Illinois can prepare for the Trump tax reforms

Local lawmakers should consider Trump’s plan and position the state to thrive under federal changes.

President Donald Trump’s newly unveiled tax plan will have a substantial impact on Illinois families and the state economy.

Illinois can flourish under federal tax changes if state government gets its house in order. But if Springfield is caught unprepared, more Illinoisans will likely leave the state.

Some provisions of Trump’s plan will strengthen Illinois’ economy, while others will expose how uncompetitive Illinois is compared to low-tax states. The most important changes that will affect Illinois are Trump’s corporate tax reform, the repeal of the state and local tax deduction, and the repeal of the death tax.

Local lawmakers should consider Trump’s plan and position the state to thrive under federal changes.

A cornerstone of the Trump plan is to dramatically lower the corporate tax rate and end the double taxation of profits earned overseas. Trump’s plan would end the tax code quirks that have driven American headquarters abroad.

Corporate tax reform is a winner for Illinois. Gone will be the days when Walgreens considered relocating to Switzerland to avoid America’s senseless corporate tax code. Illinois should benefit more than most states from corporate reforms.

The Land of Lincoln is the proud home of 36 Fortune 500 companies and is undeniably an attractive corporate hub. Global names like Walgreens and McDonalds call Illinois home and industrial giants like Caterpillar and ADM make their headquarters here.

Corporate investment and high-paying corporate jobs will come to the U.S. as a result of Trump’s changes, and Illinois will profit.

However, Trump plans to pay for his tax cuts by removing tax deductions, also known as tax loopholes. Illinoisans would lose a valuable tax loophole under Trump’s plan, because he zeroes out the state and local tax deduction.

The state and local tax deduction allows Illinoisans to reduce their federal tax burden by the amount they pay to state and local governments. Eliminating this deduction will increase the “felt cost” of Illinois’ expensive state and local spending.

Illinois is a high tax, high-income state, and Illinoisans rank No. 10 among all states for gaining from the state and local tax loophole, according to IRS tax files. If the state and local deduction is removed, high tax states like Illinois will become less attractive while low-tax states like Indiana, Texas and Tennessee will become more attractive.

Illinois families who itemize their tax returns will soon have to pay full freight on their skyrocketing property taxes, sales taxes and income taxes. Suburban communities will be hit hard if homeowners lose the valuable property tax deduction. IRS files show that Lake County and DuPage County will lose the biggest deductions.

State government needs to work double-time to reduce the tax burden for Illinois families. The first priority should be property tax relief to protect homeowners and home values.

Finally, Trump plans to repeal the federal death tax. Illinois should follow suit by repealing the state’s death tax. Otherwise, Illinois will stick out as one of the few states with a death tax, and wealthy Illinois estates will have more reason to relocate. They will be able to deduct Illinois’ state death tax against the federal death tax if there is no federal death tax. But a move to Indiana, Wisconsin or any southern state will relieve them of the tax and compliance burden altogether.

Federal tax reform sets the table for Illinois to get its house in order. Lawmakers can remove the pain points from Illinois’ tax code and make the Land of Lincoln a better place to call home.

Paul Simon Institute polling indicates that high taxes are the most-cited reason to leave Illinois. Illinoisans will be under increasing pressure to find a lower tax home unless state lawmakers take action to get Illinois’ fiscal house in order.

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