State and local taxes have an impact beyond the public revenue they raise.  To a great extent, they create incentives that shape the commercial and residential development of our communities.  GO TO 2040 recommends that state and local tax policies be analyzed to ensure they are incentivizing a strong regional economy.  A burdensome, complex, or unpredictable tax system is likely to have negative economic consequences for households, businesses, and local governments.  To keep tax rates low and economically competitive, the tax base must also be broad.  These principles are providing the policy backdrop for discussions already well underway at CMAP, and now also at the state level.     

As a result of negotiations between House and Senate leaders after the state income tax increase passed earlier this year, the Senate Revenue Committee and House Revenue & Finance Committee met jointly this month to discuss the State’s business tax structure.  The recent increase of the corporate income tax rate from 4.8 percent to 7 percent led some of larger employers in the State to threaten relocation or job layoffs.  Some states attempted to capitalize on the increase by broadcasting negative ads on billboards and through other media outlets.  The joint committee plans to meet several more times across Illinois to hear additional perspectives on these issues from local businesses and related groups.

Key business community representatives and government officials provided testimony at the joint hearing.   The business community continued to express frustration with State tax policy in terms of the recent rate increases, the use (or misuse) of economic development incentives, and a perception of “uncertainty” in the structure.  At the same time, Governor Quinn has stated he will do “whatever it takes” to keep businesses here in Illinois, according to National Public Radio.  Recently, large incentive packages were delivered to keep businesses like Motorola Mobility and Navistar in Illinois through the Economic Development for a Growing Economy Tax Credit program (EDGE) administered by the Illinois Department of Commerce and Economic Opportunity.  Over 100 companies have tax break deals through EDGE that are worth more than $100 million and set to expire over the next three years, according to the Associated Press.

When targeted effectively, these kinds of incentives can be a valuable tool for attracting and retaining businesses, but some businesses expressed concern that these outlays of tax dollars will only influence other large corporations to posture for more tax breaks.  Some from the business community testified at the joint hearing that incentives are not fairly distributed, as small to mid-sized businesses are not getting the same attention as big, multi-state corporations.  Others at the hearing defended programs like EDGE and Governor Quinn’s effort to create more jobs, saying that EDGE credits were used to help the sectors hardest hit by the recession. 

Overall, Illinois leaders recognize the State’s tax policies impact and influence the business environment, and legislative members debated about various strategies for balancing the tax system to keep the state economically competitive, while also providing vital services residents and businesses expect.  For more information on the joint committee, visit the Taxpayers’ Federation of Illinois website.

CMAP’s Regional Tax Policy Task Force is currently examining how local tax policies can better meet the needs of our residents and businesses.  By reforming state and local taxation, the region would benefit from new policies that help to advance rather than undermine GO TO 2040’s goal for sustained regional economic competitiveness.