NCPA - National Center for Policy Analysis

Businesses Threaten to Leave Illinois

December 13, 2011

In January, in an attempt to grapple with its budget problems, Illinois raised corporate taxes from 7.3 percent to 9.5 percent and personal income tax from 3 percent to 5 percent.  Although the tax hikes are theoretically temporary, both the rises and the continued failure of politicians to get to grips with the budget crisis are starting to worry businesses, says The Economist.

  • Over 17 percent of the state's operating budget, or about $5.8 billion this year, goes on meeting public-pension obligations -- a burden that will worsen as longevity increases.
  • Many companies, fearing that they, and their employees, will ultimately have to pick up the tab, are demanding tax breaks to stay in the state.
  • In May Motorola Mobility was offered $100 million in financial incentives to retain its corporate headquarters in Illinois, in the hope of retaining 3,000 jobs.
  • Last year Navistar, a truck and engine firm, also managed to extract incentives worth $65 million from the state.

Now Sears, a chain of department stores and one of the state's largest employers, is playing the relocation card.  Two Chicago-based financial exchanges -- CME Group and CBOE Holdings -- say they will go as well.

The state's general assembly has responded by preparing legislation that offers these companies a deal.  Although a final bill has yet to be agreed, legislative approval looks very likely.  Although each new individual arrangement may seem justifiable to the politicians, together they further undermine the state's financial position.  Laurence Msall, president of the Civic Federation, an independent watchdog, says the current state budget contains more than $2 billion of promises for which there is no money.  In addition, the state has carried over $5 billion in unpaid bills from previous years.

The vultures are circling.

  • Ohio has offered Sears $400 million to move to the Buckeye State.
  • Indiana has a personal taxation rate of 3.4 percent, and has promised to reduce corporate tax to 6.5 percent over the next four years.

Katelyn Hancock, a spokesperson for the Indiana Economic Development Corporation, points out that the way to compete is not through incentives but via lower taxes, a predictable regulatory climate and fiscal stability.

Source: "Illinoyed," The Economist, December 3, 2011.

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