The following article was written by St. Louis Regional Chamber & Growth Association (RCGA) President & CEO Richard C.D. Fleming. The RCGA is the chamber of commerce & economic development organization for the bi-state region.
On January 13, 2011, the Illinois General Assembly passed and the Governor signed into law Act 96-1496 which is intended to address the State’s ongoing deficits by generating $7 billion in additional revenue. Since then, much has been in the national news as Illinois and virtually every other state works to manage budget shortfalls that have resulted from the brutal recession and the expiration of federal stimulus dollars.
Several governors, several of whom have greater political aspirations, have been filling the air waves with memorable sound bites that take shots at Illinois. Appealing to their own home state voters, they have bragged of snagging jobs for their state via sales trips to the Land of Lincoln. What is the truth of the matter, and should Illinois be concerned that it may now be unable to compete for the jobs of the future?
It’s important to remember that the tax increases are temporary responses to what will hopefully be a temporary problem. These increases are set to begin rolling back in 4 years, and completely expire in 2025. We need to be confident that as our nation fully recovers from the recession, as it always has for over 200 years, businesses will invest in the future, unemployment will drop, payrolls will expand, and state revenues will increase — making such higher rates of taxation unnecessary for the long term.
Illinois is certainly not alone in dealing with difficult budget issues since the worldwide recession has created havoc for entire nations around the globe and our own federal budget. Since 2009, some 34 states have raised taxes (or “fees” — which is more acceptable sounding) to help close budget shortfalls.
The real reason some governors from smaller states are targeting Illinois is due to the enormous economic engine and source of jobs that Illinois represents. Illinois, with its diverse metropolitan areas, global corporate headquarters, critical military installations, fertile farm grounds, rivers, highways, rail, and one of the world’s busiest airports — ranks 5th nationally with a Gross State Product of $633 billion. Illinois is the 27th largest economy in the world — greater than Sweden, Egypt, Belgium , Saudi Arabia, Columbia, Greece, Ireland and Portugal, to name a few.
Everyone would like lower taxes, whether they are corporate taxes, individual taxes, sales taxes, or property taxes. Tax rates are an important consideration for a company that is considering expanding in or relocating to Illinois. But are tax rates the main consideration for businesses and individuals? The truth is that businesses consider a wide range of factors when considering where to locate, and taxes are not at the top of the list.
Area Development Magazine is the national publication that covers the site and facility planning industry. Its readers are among the nation’s corporate real estate executives and management consultants that advise companies where they should locate or expand their next plant, distribution facility, or company location. Area Development has conducted an annual survey for the past 25 years to determine what is important to site selectors and what factors drive their decisions.
Their survey among corporations consistently finds that corporate tax levels are #6 on the list, following other concerns such as highway and transportation accessibility, labor costs, tax exemptions, construction costs, and the recently-emerging issue of state and local incentives that are routinely offered. A parallel survey among site selection consultants who make these recommendations reveals that corporate taxes fall even further to 9th place, trailing operational concerns such energy costs, proximity to major markets, and availability of skilled labor. So taxes are important, but they are not paramount in the site selection process.
One last point to note is that even with the recent increases, Illinois’ tax rates are not substantially different than many of its adjoining states. The non-partisan Tax Foundation finds that Illinois’ overall tax rank will still be less than neighboring Iowa, Minnesota, and Wisconsin. And Illinois’ individual income tax rate will still be the 14th lowest in the nation — lower than Iowa, Kentucky, Minnesota, and Wisconsin. And many Illinois businesses are “S-corps” which means they will see no increases at all since they elect to pass income and deductions through to
their shareholders for federal tax purposes.
Given that these tax increases are now a fact of life, let’s urge our elected officials to make the difficult decisions, such as cutting unnecessary spending and reforming ineffective, harmful regulations that hamper business. If this is done, the Illinois economy can once again grow and produce jobs. This may well be the best course of action to ensure that the recent tax increases are, in fact, temporary.