Illinois’ sweetheart deals tilt against small businesses
The state has chosen to coddle some big businesses while punishing the small.
Ribbon-cutting ceremonies, warm handshakes and factory tour photo ops present a coveted opportunity for state lawmakers to offer small business owners their appreciation.
There’s good reason for such courtship. Businesses with fewer than 50 employees are responsible for a large majority of net jobs created in Illinois. Without the entrepreneurial drive of small business owners, the state’s economy would be lagging even further behind the nation in terms of jobs growth.
But behind the backs of the small businesses lawmakers purport to hold dear, Springfield lifts billions of tax dollars off the shoulders of their larger counterparts, thereby spreading their share of the burden to the rest of the state’s businesses.
State policymakers do this with tools such as Economic Development for a Growing Economy, or EDGE, tax credits, which shift the tax burden downward to small businesses in exchange for promises of economic growth.
Since fiscal year 2001, the Illinois Department of Commerce and Economic Opportunity has issued nearly $1.5 billion in EDGE credits.
In the nationwide bid for Amazon’s second headquarters, Illinois lawmakers have tripped over themselves offering ambitious levels of taxpayer-backed largesse in hopes of luring the e-commerce giant’s “HQ2” to the Prairie State.
However, the prospect of housing Amazon’s HQ2 isn’t the first thing to inspire Springfield’s borrowed generosity toward the company. Before the HQ2 competition had even commenced, Illinois’ EDGE program delivered Amazon more than $80 million in tax breaks in 2016.
And it isn’t just lawmakers at the state level who find themselves smitten. In 2016, the city of Aurora gifted the online retail hub with a property tax abatement worth $400,000.
Advocates extol programs such as EDGE as necessarily “pro-business,” despite the fact that the vast majority of businesses are excluded from such programs. But it isn’t just exclusion – these massive tax credits are an effective wealth transfer from small businesses to big.
And moreover, there’s little evidence that such efforts actually spark the jobs growth they’re purported to. Sears has shed hundreds of jobs in recent years, for example, despite having received generous state and local tax breaks.
Or look beyond retail: Capital One Financial Corp. got an EDGE deal worth more than $20 million from Illinois in 2015, while Brandt Group of Companies enjoyed an EDGE agreement worth more than $1 million in 2017.
When Gov. Bruce Rauner signed into law a revival of EDGE months after its April 2017 expiration, he praised the measure as a “bipartisan job-creation program that is innovative and competitive for business,” according to The Associated Press.
Yet, continuous policy failures on the part of Springfield have left Illinois with tepid jobs growth, which lags far behind its neighbors and most of the nation, and shrinking labor force participation.
By making some large companies happy, lawmakers avoid confronting Illinois’ broader fiscal crisis. Programs such as EDGE allow policymakers to offer the image of a prospering business climate without disrupting the status quo.
Lawmakers should create a tax environment that’s truly business-friendly, including low and broadly applied tax rates. With a tax policy in place that makes Illinois attractive for investment, Illinois wouldn’t need to coddle some businesses while punishing others.