Tax Foundation: Moving Illinois to Progressive Tax Would Hurt Already Low Business Tax Ranking

Tax Foundation: Moving Illinois to Progressive Tax Would Hurt Already Low Business Tax Ranking

ILLINOIS (IRN) — Illinois is below the middle of the pack when it comes to state business tax climate and a nonpartisan group says if the state were to change its flat income tax to a progressive one, it’s ranking would go down even further.

The nonpartisan Tax Foundation’s 2019 State Business Tax Climate Index puts Illinois at No. 36. That’s down from last year’s ranking of No. 33. Among Illinois’ neighbors, only Iowa had a lower overall rank of 45.

Tax Foundation’s Nicole Kaeding said Illinois is ranked 13th for its flat income tax, but its high property tax (No. 45), corporate tax (No. 39) and unemployment insurance tax (No. 42) brings the state down for the overall index.

Kaeding said looking further into those various factors should highlight to the state’s policy makers where they can make some reforms.

What if Illinois moves to a progressive income tax?

“The various proposals that have been floated in Illinois of recent years would result in a decrease in Illinois’ score both on the individual income tax component and the overall score,” Kaeding said.

Because many small businesses file income taxes as an individual, “making it a progressive structure would directly impact smaller businesses throughout the state,” Kaeding said.

National Federation of Independent Business Illinois State Director Mark Grant isn’t surprised by Illinois’ rankings. He said Illinois is too expensive for small businesses and the talk of a progressive tax leaves them uncertain.

“Our small business owners are really concerned about what that would entail, what that would mean,” Grant said.

Democratic gubernatorial candidate J.B. Pritzker is pushing a progressive tax but has not revealed what the rate structure should be.

One piece of legislation filed at the statehouse by Rep. Robert Martwick, D-Chicago, had specific rates and income levels for a progressive tax. House Bill 3522 proposed changing the tax rates to: 4 percent for income up to $7,500, 5.84 percent for income up to $15,000, 6.27 percent for income up to $225,000 and 7.65 percent for income over $225,000. That measure was tabled.

The current rate is 4.95 percent, up from 3.75 percent after last summer’s $5 billion income tax hike.

Pritzker has said he doesn’t support Martwick’s plan. Incumbent Gov. Bruce Rauner has opposed any change from a flat tax to a progressive tax.

Meanwhile several measures in the U.S. House considered Tax Reform 2.0 include allowing for easier access to a universal savings account and making the tax code less complex. A third measure expected to be passed today is making the temporary income tax cuts passed last year permanent.

Grant said that’s great news for small businesses that file as individuals.

“Small businesses are really, really excited about that tax reform that occurred already and they’re super excited about a permanent solution here so that they know they can plan ahead for years to come,” Grant said.

Kaeding said the House is expected to vote today on making the individual cuts permanent, “however it’s not expected that the Senate will consider those bills anytime in the near future.”

The Heritage Foundation found the federal tax cuts let the average Illinois household keep $2,300 and single filers keep $1,200.