Progressive income tax would deliver devastating blow to Illinois’ already-struggling economy

March 12, 2014
By Kristina Rasmussen

A progressive income tax would deliver a devastating blow to Illinois’ already-struggling business climate.

Illinois is already the fifth-worst state for small businesses, according to the second annual Small Business Friendliness Survey.

High taxes, including sales taxes and property taxes, make turning a profit in Illinois difficult.

Most recently, Illinois lawmakers passed a record income tax increase in 2011, temporarily raising rates on personal income to 5 percent from 3 percent, and on corporations to 7 percent from 4.8 percent. Those rates are scheduled to sunset in 2015 and again in 2025.

The proposed constitutional amendment would allow for both personal and corporate income taxes to be “progressive” instead of “flat” – this would be used as a pretext to increase taxes again and steal even more working capital.

This leads to shorter hours and fewer jobs for workers, as well as fewer investments in technology and equipment. Some businesses leave. Some don’t expand as much as they might have. Some never get started.

Illinois’ corporate income tax environment:

  • A new report from the nonpartisan Tax Foundation has found that proposed changes would negatively impact the state’s ranking on the State Business Tax Climate Index. Illinois would be demoted from the 31st-best climate in the country to 44th overall.

Illinois’ personal income tax environment:

  • The progressive income tax would affect many Illinois small businesses that pay taxes through the individual income tax code.
  • According to an NFIB National Small Business Poll, 75 percent of small businesses are structured as pass-through entities (S corporations, limited liability companies, sole proprietorships or partnerships) that must pay taxes on their business income at the individual rate.
  • In 2015, the state personal income tax hike is expected to sunset from 5 percent to 3.75 percent.
  • Tax rates on all small business income of more than $18,000 would be higher with a proposed progressive tax plan than what they’d pay next year under current law.

Facts from Small Business Administration:

  • Small businesses significantly impact Illinois’ economy. They represent 98.3 percent of all employers and employ 48 percent of the private-sector labor force.
  • Small businesses are crucial to the fiscal condition of the state and numbered 1.2 million in 2010.
  • Small businesses employed 2.4 million workers in 2010.
  • Most of Illinois’ small businesses are very small: 78.1 percent have no employees. Most employers have fewer than 20 employees.
  • Self-employment declined over the last decade.

TAGS: fair tax, graduated income tax, income tax, progressive income tax