Illinois sees worst month of job loss in U.S. ahead of ‘fair tax’ vote

Illinois lost 12,000 jobs in September and is home to the highest unemployment rate in the Midwest. Gov. J.B. Pritzker’s “fair tax” proposal would worsen the state’s jobs climate even more.

Just two weeks away from Illinoisans’ vote on a major tax hike proposal, troubling new data from the U.S. Bureau of Labor Statistics shows the state’s economy is reeling. The data released Oct. 20 shows Illinois lost more jobs from mid-August to mid-September than any other state in the nation.

The state shed 12,000 payroll jobs during the month, with the heaviest losses coming from the Professional and Business Services sector, which shed 12,400 jobs, a decline of 1.4%. Meanwhile, 41 states continued adding jobs over the month. Prior to 2020, the last time Illinois saw job loss so severe in a single month was July 2010.

The news comes just two weeks before a pivotal vote on whether Illinoisans should scrap their constitutionally protected flat income tax for a $3 billion progressive income tax hike, which supporters have dubbed the “fair tax.”  If voters approve the proposal, more than 100,000 small businesses would immediately face tax hikes of up to 47%, just as they are trying to recover from a downturn due to COVID-19 and the state’s associated restrictions. It would also drop Illinois’ business tax climate to 48th in the nation, according to the non-partisan Tax Foundation.

The new jobs numbers are especially troubling as most other states continue to show signs of economic recovery.

Illinois’ current unemployment rate of 10.2% remains the highest in the Midwest, far above the national average of 7.9% and three times higher than pre-pandemic levels.

Preliminary data from the Department of Labor signals bad news for the state’s next jobs report, due Nov. 19, which showed Illinois experienced four consecutive weeks of increasing initial unemployment claims, and the largest increase in the nation for the week ending Oct. 10.

The combination of rising unemployment claims and declining payroll jobs indicates Illinois’ economy could be faltering again, even as the rest of the nation continues to recover in the wake of the COVID-19 pandemic and state-mandated lockdowns.

Part of the reason the Illinois economy could be sputtering is the economic uncertainty that surrounds changing policies, such as whether voters will approve a massive income tax overhaul, which has been shown to foreshadow declines in investment and employment.

Notably, the progressive tax proposal would create combined state and local income tax rates in excess of 50% for small businesses. The state income tax increase alone would be up to five times greater on small businesses than on large ones. Because small businesses create the great majority of Illinois jobs, the tax hikes could make it harder to create jobs or keep current employees.

COVID-19 has led to an unprecedented decline in aggregate demand – and a tax increase will worsen an already struggling economy. This is why economists argue against increasing taxes during a recession, but Gov. J.B. Pritzker so far has put $56.5 million of his own money into a campaign to convince voters his $3 billion income tax hike is truly a “fair tax.” His proposal would give lawmakers more power to raise state income taxes, including on retirement income, and make city income taxes more likely.

Amid COVID-19 economic pain and record joblessness, job seekers in low-income households and minority households – those who already have been disproportionately hurt by the COVID-19 pandemic – will likely pay the heaviest price.

Illinois must avoid tax hikes now more than ever to ensure Illinois fully participates in the national economic recovery. A massive income tax hike that punishes job seekers will only serve to worsen inequality and make the state less competitive.