Illinois’ business community overwhelmingly opposes Gov. J.B. Pritzker’s progressive tax plan, which includes an increase to the state’s corporate tax that would make it third highest in the country.
After months of resisting calls to release details, Pritzker announced a proposed rate structure Thursday that he says will raise an additional $3.2 billion a year. If approved by voters, his plan would change the state’s constitution to allow for a progressive income tax with a top personal rate of 7.95 percent, a 60 percent increase over the current 4.95 flat rate.
The corporate rate would increase from 7 percent to 7.96 percent.
“Taxing and spending are not the answer to our daunting challenges,” Illinois Manufacturers’ Association President and CEO Mark Denzler said in a statement. “The governor’s plan will vault Illinois to the third highest corporate tax rate and eighth highest individual tax rate in the United States.”
Many small business owners file as individuals and Pritzker’s plan would tax them higher the more their business grows.
Under Pritzker’s personal income tax structure, anyone making up to $10,000 a year would pay 4.75 percent in income taxes under Pritzker’s plan, down from the current flat rate of 4.95 percent. Those earning up to $100,000 would pay an effective tax rate of 4.90 percent. Those earning between $101,000 $250,000 would pay the current effective rate of 4.95 percent.
From there, the rate jumps nearly 3 percentage points to 7.75 percent for those making up to $500,000. Individuals and small businesses earning more than that would pay an effective rate of 7.85 percent. And those with income above $1 million would pay the state 7.95 percent on 100 percent of their income.
“Under this proposal, Illinois would have some of the highest business taxes in the country,” said Jared Walczak, a senior policy analyst at the Tax Foundation. “Not only that, but due to a recapture provision, as soon as an individual filer reaches the top bracket, all her income [including small business income] would be taxed at the top rate.”
That won’t just impact small business owners, but employees and customers too, Walczak said.
“While many of those small business owners may be well off, the impact of such a dramatic tax increase on small businesses will be felt by employees and customers as well,” he said. “While other states in the region are working to improve their tax codes, Illinois is considering a dramatic lurch in the wrong direction.”
Illinois Chamber of Commerce CEO Todd Maisch said business owners can do the math, especially those businesses making more than $1 million a year.
“[Under Pritzker’s proposal] once you hit $1,000,001, 100 percent of your income then gets taxed at the highest rate [of 7.95 percent]. The whole concept of a marginal rate evaporates,” Masich said. “They know how to go ahead and do the math … they’re going to go ahead and find a way to either avoid paying on $1,000,001 or they’re simply going to go to a state that doesn’t have any income tax and they don’t have to worry about it.”
National Federation of Independent Business Illinois State Director Mark Grant said if Pritzker’s plan were to go through, he would expect small businesses to pack up and take their jobs with them.
“And then what happens is the people left behind are stuck with new bills and then all the pension costs we have,” Grant said.
At a Thursday afternoon press conference, Pritzker rejected that notion.
“There are those who want to scare people by claiming that this proposal will cause residents and businesses to flee Illinois. They couldn’t be more wrong,” Pritzker said. “They ignore the fact that people and businesses are fleeing our state now under our current regressive tax system, yet states with fair tax systems on average grow faster and create more jobs than Illinois.”
Illinois’ population has declined each of the past five years, according to the U.S. Census Bureau, and many cite the state’s high taxes as a reason for seeking opportunity elsewhere.