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1 Justin Higginbottom, Illinois Should Respond to Recession by Broadening Tax Bases and Spending Frugally, Not by Raising the Personal Income Tax Rate 1 (2010)

handle is hein.taxfoundation/ffcbgxz0001 and id is 1 raw text is: FOUN::.D.T1ON March 11, 2010 No. 216 _ __. _ Illinois Should Respond to Recession by Broadening Tax Bases and Spending Frugally, Not by Raising the Personal Income Tax Rate By Justin Higginbottom Introduction Though it isn't exactly breaking news to Illinoisans, their state government is in horrible fiscal shape. The recession left a budget shortfall of around $11 billion for the combined fiscal years 2009 and 2010. Their 2010 budget borrowed a few billion, shoved a few billion onto next year's docket, and still left the state with a shortfall of over $4 billion. Illinois is on borrowed time. And although taxes alone should not be relied on to bring the state out of the red, a change in tax policy can help its economy. The state should expand tax bases to end government distortions in the economy and enable the enactment of lower statutory tax rates. Tax hikes that risk making an already harsh tax climate for business more so should be avoided. Hiking personal income taxes especially, as proposed by Gov. Quinn, would mar one of the only good features of Illinois's tax system, making the state certainly less attractive to the businesses and individuals that Illinois ought to be courting. Overview of Illinois's Tax Climate When state officials think of how their states can compete to be the location where new businesses start and existing businesses expand, they usually approach the task with an elaborate public relations campaign and payoffs to targeted companies in the form of special tax abatements, credits and other red-carpet treatment. Alas, this strategy is a disastrous misconception of economic development. If states have reasonable tax laws, they will not need to promise embarrassingly generous credits to incoming firms, and the tax comparisons that we cite here are Justin Higginbottom is a staff economist at the Tax Foundation.

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