Illinois needs to grow economy, not raise taxes

Illinois taxes are impacting businesses.  

Illinois “continues to destroy opportunities for employees and businesses,” Chief Executive Magazine quoted one business leader as saying as part of its recent ranking of the state as 48th in the nation for business climate.

“It’s not surprising,” Ted Dabrowski, vice president of policy for the Illinois Policy Institute, said. “What it really is, is sad.”

Chief Executive Magazine identified, among other things, Illinois’ continued lag behind the rest of the nation in gross domestic product (GDP) output as a consequence of regular tax increases.

“When you think about it, Illinois has great assets; it’s a great state,” Dabrowski said. “Sadly, when you look at all the public policies that have been put out in the last couple of decades, it’s destroying business.”

Dabrowski said the growing regulation and increasing tax rates are forcing more and more businesses that would move to the state to consider looking elsewhere. The market, he said, is no longer a “level playing field” and businesses are having a hard time breaking into the various regulatory frameworks put in place.

Chief Executive Magazine notes that among the state’s challenges are legislators' consideration of a graduated income tax that would create “tiers” topping out at 11.25 percent for pass-through businesses, a tax status that previously shielded smaller businesses from double-taxation. A note on the bill from the Illinois Department of Revenue estimates the new tax structure would result in a $1.9 billion drop in GDP and the loss of 20,000 private sector jobs.

“That Democratic hold (on the legislature) continues to defend the ‘middle class’ … but the ‘middle class’ is actually the union middle class,” Dabrowski said. “And they do that at the expense of the private middle class.”

Attempts to curtail the state’s growing budget deficit have, to date, resulted in a stalemate, but Dabrowski sees this as somewhat positive. Though not having a budget threaten social safety net organizations, such as Lutheran Social Services, as well as a number of public colleges and universities, Dabrowski sees hope for real change. For the last two decades, he said, a succession of Democratic governors have “rubber-stamped” regular requests for higher taxes and bigger budgets.

“The reason we don't have (a budget) is because there's not an agreement to raise taxes,” he said. “We're not doing the same old thing we've been doing the last few years.”

Among the biggest targets for reformers, like Dabrowski, are pension funds and workers' compensation laws. A December legislative report showed that the state’s pension liability was up to $111 billion. An analysis by the Wall Street Journal of data from 2014 showed the Illinois pension system was only 47.1 percent funded, the lowest in the nation behind Kentucky and Connecticut.

Meanwhile, workers' compensation rates in Illinois are, for industries like steel manufacturing, as much as two to three times higher than surrounding states, according to analysis from the Illinois Policy Institute. Far from being a problem only for CEOs, the state’s own attorney general, Lisa Madigan, implored the legislature to reform workers' compensation laws in a 2012 letter.

“The current law and the decisions interpreting the law … make it extremely difficult for employers, including the state, to successfully defend these cases and limit the costs,” Madigan wrote.

But for many like Dabrowski, the state moving up in the rankings may have less to do with a specific policy initiative and more to do with a shift in culture.

“I think what our legislature needs to realize that, rather than keep taking people's money through higher and higher tax rates, what they need to do is focus on growing the economy.” Dabrowski said. “You grow tax revenue through a vibrant economy rather than by taking more and more out of people’s pockets.”

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