President Joe Biden’s plan to raise corporate tax rates to 28% will do Illinois’ business climate no favors, driving the combined state and federal rate to the fifth-highest in the nation, according to the Tax Foundation.
Biden is not alone is targeting job creators: Illinois Gov. J.B. Pritzker has repeatedly floated schemes to extract more taxes out of Illinois’ businesses as they struggle to recover from his COVID-19 restrictions that shuttered 35% of Illinois’ small businesses during 2020. Those small businesses are Illinois’ most fertile jobs creators. Illinois still has nearly 500,000workers unemployed, a rate of 7.8% in February. That’s significantly higher than the national unemployment rate of 6.6%, according to the most recent IDES data.
Biden is seeking the corporate tax hike to fund his infrastructure plan. Currently the federal tax on corporations is 21% and he proposes increasing it to 28%. That would bring the effective corporate tax rate to 35.4% in Illinois, the second highest in the Midwest and fifth highest in the nation.
At the same time, rather than pursuing spending reforms, Pritzker is pursuing nine new taxes worth nearly $1 billion, including ones that would hurt job creation efforts. The move was decried by the Illinois Chamber of Commerce and Republicans because Pritzker is not closing unfair “loopholes” as he claimed, but rather trying to take back a deal he made early in his term for key tax incentives and deductions intended to create jobs.
Today, 35% of small businesses are closed compared to before the pandemic, more than any other Midwestern state except Michigan. Illinois’ massive decline in the number of small businesses is eighth worst in the nation.
Pritzker is also rumored to be pursuing the cancellation a pandemic recovery tax credit for small businesses that would take from $500 million to $1 billion more from them as they struggle to recover.
Illinois’ small businesses are struggling amidst COVID-19 and state-mandated mitigation protocols. Many small business owners are struggling to pay rent, pay their employees and keep their businesses alive to provide for their families. Small businesses are Illinois’ largest job creators, responsible for more than 69% of net job creation.
It is vital for the state’s recovery that these small businesses survive and reopen. Illinois’ economic recovery already lags most states.
It is imperative lawmakers work to avoid the harm to businesses and jobs that tax hikes would create. Economists argue against raising taxes during a recession. Tax hikes take away resources business owners need to invest in keeping their business alive during the pandemic and for hiring new employees.
Instead of constantly pursing tax hikes which would further harm Illinois’ economic recovery, Illinois can improve its finances and continue to provide core services mainly by implementing constitutional pension reform. The Illinois Policy Institute offers a reform plan which would balance the state budget without tax increases along with other fiscal fixes that can give overburdened Illinois taxpayers a path to declining debt, lower taxes and more effective state government.
Harming small business and large corporations by upping tax rates may be a strategy to give politicians money to spend, but it takes away jobs at a critical time when workers and businesses need space to recover.