THE PROBLEM

In 2010, the Illinois Policy Institute reported that Illinois is a high-tax state with a tax burden in the top third of all states. The Institute cautioned that any tax increase would damage the state’s economic competitiveness. Illinois Gov. Pat Quinn and the Illinois General Assembly ignored numerous warnings and used a lame duck session in 2011 to pass a 67 percent personal income tax rate increase and a 47 percent corporate income tax rate increase.

As expected, the tax increases failed to fix Illinois’ fiscal and economic problems. Illinois still has $9 billion in unpaid bills, the lowest credit rating in the nation and a political class that has stalled on passing wholesale fiscal and pension reforms. All these problems, along with the state’s unattractive tax code, contribute to one resident moving out of the state every 10 minutes.

While politicians in Illinois were raising tax rates, leaders in other states were reining in spending, lowering tax rates and solving long-term deficit problems. Data for 2011 state and local tax burdens is not yet available, but one thing is clear: Illinois isn’t just a high-tax state; it is an even higher-tax state than it was before.

THE SOLUTION

Illinois can foster a more competitive business climate by enacting comprehensive tax reform, including repealing the 2011 income tax increases. The state should also lower the rates of sales, property and excise taxes, and reject any attempts to adopt higher tax rates or progressive tax rate structures. Eventually, Illinois should abolish its personal and corporate income taxes entirely as part of a fundamental tax-system restructuring.

WHY THIS WORKS

Illinois’ tax code does not operate in a vacuum. Entrepreneurs, investors, workers, consumers and taxpayers, both inside and outside the state, constantly compare and contrast Illinois with other states in the Midwest and across the nation. Because of Illinois’ high tax rates, the state does not compare favorably to others. Lawmakers should be focusing on creating a business climate that entices entrepreneurs to set up shop in Illinois. One good place to start is by creating a competitive tax structure.

Repealing the 2011 tax hikes would restore economic competitiveness to Illinois. It would also force Quinn and the Legislature to focus on reforming state programs and encourage a pro-growth economic environment. In the long term, repealing the tax hike would help Illinois achieve the goal of going from worst to first among its neighbors in economic growth, job creation and competitiveness.