Manufacturing giant passes up Illinois for Wisconsin
News outlets have reported that Foxconn will announce plans to build a production plant in Wisconsin that could employ up to 13,000 workers.
Foxconn Technology Group, the Taiwanese electronics manufacturing company that assembles Apple iPhones, is expected to announce plans to build a new production plant in southeastern Wisconsin.
The new factory, which could employ up to 13,000 people according to the Chicago Tribune, would manufacture display panels for large screen televisions. The Tribune has reported the company plans to invest $10 billion in expanded U.S. operations.
The Tribune also noted that in February, Illinois Gov. Bruce Rauner invited Foxconn’s chairman, Terry Gou, to visit Illinois, and mentioned potential tax credits, sales tax exemptions, workforce grants, infrastructure grants and property tax abatements for the company if it settled in Illinois.
Illinois frequently misses out on new business opportunities due to high taxes and regulations. This situation prompted Caterpillar’s then-CEO, Doug Oberhelman, to write an op-ed in 2012 outlining the reforms Illinois needs to foster an environment for jobs growth. Oberhelman’s suggestions were not acted on, however. In the four years following the publication of Oberhelman’s letter in The (Springfield) State Journal-Register, Illinois was the only state in the region with a net loss of manufacturing jobs.
Wisconsin Manufacturers & Commerce – Wisconsin’s Chamber of Commerce – heralded Foxconn’s announcement as proof that the state’s business climate is improving.
“The transformative tax, regulatory and litigation reforms enacted over the past six years, like Act 10, the Manufacturers and Agricultural Production Tax Credit (MAC) and Right to Work, have fundamentally changed how the world views Wisconsin,” said Wisconsin Manufacturers & Commerce CEO Kurt R. Bauer in a press release.
“Foxconn proves Wisconsin can play and win in the big leagues.”
There are several reasons a large manufacturer might not want to invest in Illinois.
Illinois’ combined state and local tax burden is the highest in the nation, according to a March 2017 report from WalletHub. A median Illinois household pays $8,162 in annual state and local taxes, including sales, property and income taxes.
Despite this, the General Assembly passed Illinois’ largest permanent income tax hike in July, increasing the personal income tax rate to 4.95 percent from 3.75 percent and the corporate rate to 7 percent from 5.25 percent. These higher taxes would not only be burdensome to a company, but also to all the workers the business would employ.
On top of that, Illinois has higher property taxes than any state with no income tax at all.
Moreover, neighboring Wisconsin’s property taxes as a percentage of personal income are the lowest the state’s seen since the end of World War II. And Indiana, another neighboring state, has property tax bills nearly a third of what Illinois pays. Illinois’ high property taxes are unattractive to large manufacturers planning to build sprawling, multiacre facilities.
Companies are more likely to choose locations near enough to the Prairie State and Chicago to capitalize on its workforce, but across state borders where there’s a lower tax burden. In 2016 and 2017, several companies moved to neighboring states. Colbert Packaging Corp. , Vonco Products LLC, Prestige Metal Products and Haribo all decided to move to or expand operations in Wisconsin.
Businesses in Illinois face a high number of regulations and pay a steep price to comply with them. It is almost impossible for companies – both large and small – to know every restrictive regulation; this creates a minefield-like environment for budding businesses.
Illinois’ 2017 Administrative Code is a massive document that would take a person nearly 21 weeks to read – if he or she were reading 40 hours a week at 300 words per minute, according to a study by the Mercatus Center. The Mercatus study notes the Illinois code contains over 250,000 restrictions, double that of neighboring states such as Missouri and Kentucky. Industry-specific regulations target chemical manufacturing (22,128 regulations), food manufacturing (12,001 regulations) and animal protection and agriculture (5,971 regulations).
Illinois has the most costly workers’ compensation system in the region and the seventh-most expensive system in the nation. Employers that leave Illinois or choose to expand elsewhere regularly cite workers’ compensation as a reason for relocation.
Illinois’ current workers’ compensation system puts it at a disadvantage when competing for jobs with neighboring states, especially riskier jobs such as manufacturing, construction and transportation. For example, manufacturers in Illinois pay significantly higher workers’ compensation costs for equipment- and machine-repair workers than manufacturers pay in neighboring states. A move from Illinois to Indiana could save a machine- and equipment-repair manufacturer nearly 6 percent of total payroll costs. Additionally, workers’ compensation premiums for long-distance truck drivers are nearly 50 percent higher than the average of surrounding states.
Right to Work
In 2015, Wisconsin became the 25th Right-to-Work state. The law passed protects worker freedom and paychecks by making it illegal to compel workers to join a union or to resign from a union as a condition of employment. Right-to-Work states have higher population growth, higher wage growth, higher jobs growth, lower unemployment and higher income, according to research by the Mackinac Center for Public Policy.
The high cost of doing business in Illinois includes high taxes, excessive regulations and the ever-present threat of more tax hikes as Illinois struggles with nearly $15 billion in unpaid bills and more than $250 billion in pension liabilities, according to Moody’s Investors Service. This will keep more new businesses from settling in Illinois until the state enacts significant reforms.