‘Millionaire tax’ could push Illinois corporate income tax to highest in U.S.

A push to raise Illinois’ income tax may create the most extreme business income tax rate in the nation. “Millionaire tax” could hurt jobs in a state already struggling.

Illinois voters will see a series of non-binding advisory questions on their Nov. 5 ballots, but the question about a “millionaire tax” hides the potential to do serious damage to the state’s economy.

State politicians are asking voters whether they favor changing Illinois’ flat income tax structure to a system that would allow for income to be taxed at varying rates. If voters approve the advisory question, state lawmakers would have the green light to change the state constitution and add a 3% income tax on those with incomes of more than $1 million. The proposal could then allow the state to raise its business income tax by 82%, from the current 7% to 12.72%.

Illinois’ individual income tax and business income tax are linked, with current law permitting the state’s business income tax rate to be increased with the individual income tax rate in an 8:5 ratio. This means a change in Illinois’ individual income tax structure to create a top rate of 7.95% could allow for the state’s top business income tax to be raised to 12.72% – an 82% increase compared to today.

The situation for Illinois businesses would be even worse, though. Because corporations pay the state’s Personal Property Replacement Tax – a 2.5% tax for C-corporations –  on their business income, the state’s total business tax rate would rise to 15.22% after factoring in this tax. That would be the most extreme state business tax rate in the nation and more than 55% higher than Minnesota, the state currently with the highest business income tax rate.

Illinois already has the second-highest corporate tax rate in the nation at 9.5% and one of the least friendly business environments in the country. This is likely part of the reason Illinois has one of the highest unemployment rates in the nation in addition to some of the slowest wage growth for employees.

The changes permitted under a “millionaire tax” would make the situation worse. Illinoisans should understand the impacts of this latest call for higher taxes on the state’s small business community – the traditional source of state job growth.