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1 Lyman Stone, Illinois Considers Further Income Tax Increases as Temporary Tax Nears Expiration 1 (2014)

handle is hein.taxfoundation/taxfaaba0001 and id is 1 raw text is: TAX Jan. 2014 No. 411 Illinois Considers Further Income Tax Increases as Temporary Tax Nears Expiration By Lyman Stone Economist Key Findings * Illinois' State Business Tax Climate Index score could fall to 44th, from 31st currently, if the proposed progressive income taxes are passed, which indicates a tax climate less supportive of economic growth * Illinois already fell from 17th over the last few years with several rounds of tax increases, which did not succeed in alleviating Illinois' financial situation or improve the economy * Higher and more progressive income taxes generally contribute to worsening economic performance Illinois significantly raised taxes in 2011 in an attempt to address its $8.5 billion backlog of unpaid bills and other financial difficulties. The state raised its flat individual income tax from 3 percent to 5 percent and increased the corporate income tax from 7.3 percent to 9.5 percent.1 The 2011 tax increases have generated between $7 billion and $8 billion in added revenue each year.2 In 2015, the tax increases are scheduled to partially sunset, with the individual income tax dropping from 5 percent to 3.75 percent and the corporate income tax dropping from 9.5 percent to 7.75 percent (see Table 1). In 2025, the individual income tax is scheduled to drop further to 3.25 percent and the corporate income tax to 7.3 percent. Table 1: Illinois Tax Rates Pre 2011 2011 to 2014 Individual Income Tax Rate 3.0% 5.0% Corp:3orate 5 ( Income 5ax Rat35 7I3LC 9.5% Sou rce: 35 1ILCS 5120 1(b); 35 ILCS 5/20 1.5; 35 ILCS 5/201 (d). 2015 to 2024 3.75% 7.75% 2025 and after 3.25% 7.3% 1 See Kail Padgitt & Joseph Henchman, Illinois Approves Sharp Income Tax Increase, Fourth -Highest Corporate Tax Rate, TAx FOUNDATION FISCAL FACT No. 256 (Jan. 13, 2011), http://taxfoundation.org/article/illinois-approves- sharp-income-tax-increase-fourth-highest-corporate-tax-rate. Illinois' corporate income tax consists of a net income tax (currently 7 percent) and a property replacement tax imposed on corporate income (currently 2.5 percent). Reference sources that cite Illinois' corporate income tax, including the Illinois Department of Revenue, report it as a combined tax. 2 Commission on Government Forecasting and Accountability, Budget Summary Fiscal Year 2014.

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