Last week’s news of our Illinois Legislature passing and Gov. Pat Quinn fast tracking his signature on hefty tax increases sure lit up the Internet and talk radio discussions. For those who haven’t been paying attention, income taxes in Illinois were raised from a flat 3% to 5% effective immediately (and retroactive to Jan. 1). And the same legislation raised corporate income taxes from 4.8% to 7%.
No doubt, a 66% increase in personal and a 46% increase in corporate taxes are causing a firestorm.
Nobody wants to pay more taxes, but it has become increasingly apparent that the state of Illinois cannot cut or save itself into prosperity. I, and people much smarter than I, have long said the state would have to make substantial cuts and increase revenue (read: increase taxes) to manage the $15 billion annual deficit. And that’s what is happening. It hurts, deeply, but the good news is that these taxes sunset in four years.
In 2015, income taxes will be set at 3.75% and corporate income taxes will drop back to 5.25%. It will be a painful four years, and if the situation is not much improved, the lawmakers who passed the bill will probably be fired. Or at least, they should be.
The tax increase has also fueled some misconceptions. Governors from surrounding states have used the increase to predict a mass exodus as residents and businesses flee the oppressive new taxes. However, as we reported in The Telegraph on Sunday, the taxes in surrounding states are almost as bad, if not worse, than the new tax rates in effect in Illinois.
And that’s something those governors didn’t say in their sound bites.
Illinois has raised its individual income tax from 3 percent to 5 percent. Here are individual income tax rates for neighboring states:
STATE TAX RATE RANGE; NUMBER OF BRACKETS
Iowa 0.36% to 8.98% ; nine brackets
Indiana 3.4% flat rate; one bracket
Kentucky 2% to 6%; six brackets
Missouri 1.5% to 6%; 10 brackets
Wisconsin 4.6% to 7.75%; five brackets
The Illinois corporate tax rate has increased from 4.8 percent to 7 percent. Here are corporate tax rates for neighboring states:
Iowa 6% to 12%; four brackets
Indiana 8.5% flat rate; one bracket
Kentucky 4% to 6%; three brackets
Missouri 6.25% flat rate; one bracket
Wisconsin 7.9% flat rate; one bracket
Note: My favorite quote was from Indiana Gov. Mitch Daniels: “You guys are nothing if not entertaining over there… It’s like living next-door to the Simpsons – the dysfunctional family down the block.”
Really, Mitch? Our new corporate tax is 7%. Yours is 8.5%. Now, I didn’t go to school in Indiana, but unless Hoosier math is different, 8.5% is HIGHER than 7%.
Certainly a lot more than state taxes is considered in a decision to move a business or a family for that matter, but it is interesting – maybe even helpful – to know how our neighbors are taxed.