As the Tax Burdens On Illinois Business Increases, Outward Migration Follows

The last thing the state of Illinois, and specifically the Chicago metropolitan area, needed was to lose one of its major employers. But that’s exactly what happened when OfficeMax merged with Florida’s Office Depot. This cost the state over 2,000 jobs, while Florida looks to gain 1,700. Apparently saving Office Depot was not a high priority for the Illinois House of Representatives, who recessed the session without even taking a vote on incentives to keep the office-supply giant. Illinois legislators clearly had another agenda, namely capturing a large Boeing contract, while virtually ignoring a $1.2 billion company looking for reasons to stay. We all know how it turned out. Boeing will keep its manufacturing in Seattle, and Office Depot took its sizable assets to Boca Raton.

When asked what prompted their decision to consolidate their operations in Florida, Office Depot executives cited several considerations. One factor was Illinois’ unfavorable tax policies towards business. After the announcement was made in December, Illinois Rep. David Mc Sweeney (R) summed up the situation succinctly: “We need to cut tax rates across the board.  We need to create a better business environment.”

Apparently, others see things differently. A recent article in chicagobusiness.com would lead you to believe that all is well on the business tax front. Businesses are extolled for their contributions to the state’s budget, and concerns about companies who pay little or no tax are downplayed. After all, the balance of Illinois businesses pick up the slack and foot the bill for nearly 45 percent of the total state and local taxes. All may be well from the state’s perspective, but taking businesses for granted (as evidenced in the case of Office Depot) and counting on them to continue to contribute 45 percent to a burgeoning budget is somewhat cavalier. There comes a point where escalating the tax burden on business will reach a saturation point, and they will start looking for options. In 2013, United Van Lines reported that Illinois had the highest share of outbound shipments in the US two years in a row, trailing slightly behind New Jersey. That says it all.

Consider this. Thirty-nine percent of the tax burden Illinois businesses comes directly from property taxes on real estate that they own and occupy. This is easily validated. On the 2013 taxfoundation.org State Business Tax Climate ranking, listing states from highest to lowest corporate property tax rates, Illinois comes in a dismal 44th.  On the 2013 chiefexecutive.net ranking of best and worst states for business, Illinois lands in the nearly dead-last position of forty eighth, ahead of only New York and California. All are high-tax states. All were once economic titans, but are now the three greatest contributors to outbound wealth in the US.

Between the years 1992 and 2010, indisputable data derived from the IRS shows that the state of Illinois lost over $29 billion in net adjusted gross income due to outward migration. Where did this money go? Like Office Depot, much of it ($6.8 million) traveled directly to Florida, a state with no personal income tax and a corporate income tax rate a full 4 percent lower than Illinois’.

Continuously increasing tax burdens to pay for bloated expenditures is not the route to balanced budgets. This only leads to an exodus of the state’s tax base. Statistical and empirical data both point to the fact that reducing spending, lowering taxes, and creating a business-friendly environment are the only ways to turn deficits into surpluses.