2% tax increase = 67% increase in Illinois

Pat Quinn

Pat Quinn

Dinner Topics has been a little sluggish to start the new year, but you certainly didn’t need our site to hear about the homeless man with the “golden voice,” unexplained mass bird deaths, snowstorms battering the east coast again, and the tragic shooting spree in Arizona.

The latest news brewing around the country is Illinois’ sudden increase in state taxes from 3% to 5%, a 67% raise in the rate Illinoisians will be paying when the taxman comes knocking.  The new tax law was passed just two hours before new lawmakers were scheduled to be sworn in, several of whom would likely not voted for the increase.  Instead, Governor Pat Quinn and the majority of the Illinois government chose to increase taxes rather than reduce spending in an effort to eventually pay off the $13 billion deficit,1 although some lawmakers insist that cuts will be made as well.  Worse yet, small businesses in Illinois will be taxed 7% instead of the previous 4.8%.

A promise of sorts has been made that both tax increases will be temporary and will return to more normal levels in a few years.2 Here’s the problem with the simple math of “raising ‘x’ more money times ‘y’ people will bring in ‘z’ dollars and help us balance the budget”: nobody took into account defection or lack of startups. What lawmakers did account for, however, is that tax rates throughout the country aren’t much better, so there aren’t too many easy alternatives other than closing up shop, which is a very likely solution for many small businesses.  As for new businesses, while establishing themselves in another state with lower taxes isn’t always a given, it can be assumed that many ventures will never get off the ground because of the increased tax burden, effectively costing the state lost wages in unearned potential.  By the time the taxes are collected, a failure to look more than one step ahead may result in collecting a lot less money than expected, and even less when (read: if) the rates are lowered again.  Or maybe not.  That’s why it’s a good Dinner Topic.  Have it out with your significant other tonight as you talk taxes and politics.

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Read on:

ChicagoTribune.com – Quinn on tax hike: ‘Our fiscal house was burning’

TaxFoundation.org – State Individual Income Tax Rates, 2000-2010

TaxFoundation.org – State Corporate Income Tax Rates, 2000-2010

  1. http://www.nytimes.com/2011/01/10/us/10illinois.html
  2. The individual tax is scheduled to come back down to 3.75% in 2015.

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