Looking to Taxes as Solution to a Crisis

More on the Illinois budget woes we mentioned earlier.

So are Illinois residents taxed at a higher rate than other states would tax? Always a bit hard to measure, because there are so many kinds of taxes, and some apply to residents and some to businesses. And more importantly, would companies move away from Illinois if the taxes increased?

Interstate

Illinois could raise about $6 billion, covering roughly half the expected 2011 budget deficit, by increasing the Illinois income tax rate on individuals to 5 percent, from the current 3 percent, and raising the corporate tax rate to 6.4 percent, from 4.8 percent, the Civic Federation’s said.

But higher taxes also affect how employers view the state’s business climate, a calculation that factors in state and local taxes on retail sales and business income, too. The Tax Foundation, a nonprofit and nonpartisan organization that measures federal and state taxes, said Illinois’s business climate suffers because low income tax rates are offset by the high rates on retail sales and property transactions.

As of September 2009, Illinois’s combined state and local sales taxes averaged 8.4 percent, making the state the sixth-biggest taxer, just ahead of New York, said Justin Higgenbottom, a Tax Foundation analyst. Illinois’s high taxes on property earn it sixth place in that category.

In addition to the corporate rate of 4.8 percent, other taxes bring the effective Illinois corporate rate to 7.3 percent, Mr. Higgenbottom said. That means the Civic Federation proposal would in effect take the state’s top corporate rate in Illinois to 8.9 percent.

Once the analysts add it all up, the Tax Foundation said Illinois’s state and local taxes in the 2008 fiscal year represented 9.3 percent of the state’s income. That ranks Illinois below the national average of 9.7 percent and roughly the same as surrounding states except Wisconsin, which is higher.

[Click to continue reading Chicago News Cooperative – Looking to Taxes as Solution to a Crisis – NYTimes.com]

Don't Even Bother

Will facts be compelling enough to convince Illinois legislators to push tax increases? Depends if fear of being labelled a tax-and-spender in the next election cycle trumps being fiscally responsible. I’d be surprised mightily, if the corporate tax rate went up, and moderately surprised if the income tax rate went up.

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