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1 Joseph Henchman & Kail Padgitt, Illinois Considers Sharp Income Tax Increase, Highest Corporate Tax Rate 1 (2011)

handle is hein.taxfoundation/ffcffxz0001 and id is 1 raw text is: 9F N D A T IO N : 100, EN 0 O January 7, 2011 No. 255 Illinois Considers Sharp Income Tax Increase, Highest Corporate Tax Rate By Joseph Henchman & Kail Padgitt Plan Would Raise Individual Income and Corporate Income Taxes On January 6, Illinois Senate President John Cullerton (D) announced a legislative deal to raise individual income, corporate income, and cigarette excise taxes.1 The tax increases are projected to raise approximately $7.5 billion per year. and be coupled with $12 billion in additional borrowing. Illinois has accumulated billions of dollars in unpaid bills and officials have made little progress compared to other states in producing a structurally balanced budget.2 Under the plan, Illinois's one-rate individual income tax will rise from 3% to 5.25%, a 75 percent increase. The corporate income tax will rise from 7.3%3 to 10.9%, a 49 percent increase and becoming the highest state corporate income tax in the United States and the highest combined national-local corporate income tax in the industrialized world.4 The cigarette excise tax would rise from 98 cents to $1.98 per 20-cigarette pack. The income tax increase would be retroactive to January 1, 2011. After four years, the individual income tax will decrease to 3.25%. The plan also includes a $325 annual check to property owners, instead of the current property tax deduction. Plan Would Drop Illinois's Rank on the State Business Tax Climate Index Our 2011 S/le TBuszness Tax Climate hidex ranked Illinois 23rd in the country, middle-of-the-pack compared with its immediate neighbors.5 Illinois's low, one-rate individual income tax offers the advantages of simplicity, stability, and a competitive rate relative to other states, and outweighing more negative elements of the state's tax system. (See Table 1.) Joseph Henchman is Tax Counsel & Director of State Projects at the Tax Foundation. KailPadgitt, Ph.D. is Staff Economist at the Tax Foundation. 1 See Benjamin Yount, Top Dems: Deal on Illinois Tax Hike, Illinois Statehouse News (Jan. 6, 2011), http: / illinois.statehouseniewsonline.com,/4847itop-dems-deal-on-illinois-tax-hike; Ray Long & Monique Garica, Democrat Lawmakers Push 75% State Income Tax Increase, Chicago Tribune (Jan. 6, 2011), b:--w-w- chicagotribune-com/-ncxx s, localct- met-illinois- tax-hike- 0107-2011010 0,5933 761.storV. 2 See Joseph Henchman, 60 Minutes on State Budget Woes, Tax Foundation Tax Polig Blog (Dec. 21, 2010), http: w/Iw.taxfoundation org.b!0g. show,'i691.html; Joseph Henchman, Illinois Governor Quinn Proposes Income Tax Increase, Borrowing, Not Paying Bills, Tax Foundation Tax Poli y Blog (Mar. 10, 2010), ht/iwwwx\taxfoundationorg blog, show! 25963.htm. 3Some news reports have indicated that Illinois's corporate income tax is currently 4.80%. This does not include a 2.50% property replacement tax imposed on corporate income. Reference sources that cite Illinois's corporate income tax, including the Tax Foundation and the Illinois Department of Revenue, report it as 7.30%, including this tax. 4 See, eg, Tax Foundation, Comparing U.S. State Corporate Taxes to the OECD, 2009, ww txtunato or adt hw 2303 4.h ml. Illinois's new top rate would exceed Pennsylvania's, the current highest combined national-local rate. sKail Padgitt, 2011 State Business Tax Climate Index, Tax Foundation (Oct. 2010), http.i !wxvwtaxfoundation.org ne ,-s show :22658.html.

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