 Since Illinois increased its corporate income tax by 46 percent,
from 4.8 percent to 7 percent this past year, several unexpected and
expected changes occurred.The number of limited liability
companies, or LLCs, and corporations registered with the state
actually increased, from 71,449 in fiscal 2010 to 73,130 in fiscal
2011, according to the Illinois secretary of state.
The number of nonfarming jobs increased by 1 percent, from 5.6
million in 2010 to 5.7 million in 2011, according to the Illinois
Department of Employment Security.
And the state unemployment rate increased from 9 percent last
January to 10 percent in November, the latest figure available.
Meanwhile, the national unemployment rate dropped from 9.1 percent
at the start of 2011 to 8.7 percent in November, a 4.3 percent
decline.
Economic paradox
Recoveries usually create a paradoxical mix of economic figures,
said Fred Giertz, an economist with the Institute of Government and
Public Affairs at University of Illinois at Urbana-Champaign. Giertz
puts out a monthly index of the state's fiscal health.
"To get the unemployment rate down, you don't just have to create
new jobs, you have to create enough jobs to absorb the number of
people coming into the job market," he said.
When unemployed people give up looking for jobs, they are no
longer counted in unemployment figures. As the economy slowly
improves and those people once again start looking for work, they
can inflate the unemployment rate, Giertz said.
As far as higher taxes are concerned, Giertz pointed to the
state's fiscal health. Raising income taxes would have been a huge
blow to businesses, if the state's finances were healthy and robust,
but since the state was on the verge of financial collapse, raising
taxes wasn't the worst decision.
Businesses don't want to expand in a state that's in dire fiscal
straits, he said. Illinois' deficit at one time approached $15
billion as the state's skipped payments to vendors and spending
outpaced income.
However, Todd Maisch, vice president of government relations for
the Illinois Chamber of Commerce, the state's largest business
association, said the income tax increases have crippled economic
recovery.
"To be honest, if you are really in a hard-hit industry, you're
probably operating at a loss, and so you haven't felt the impact,"
Maisch said. "Probably the ones that were hit the hardest were those
that were starting to come out of the recession and starting to turn
a profit."
Ripple effect
Rolling back the income tax increases could have a ripple effect.
Illinois House and Senate Republicans say the rollback would
foster job creation by creating a more competitive business climate.
But a premature rollback could result in teachers, firefighters
and police officers statewide being fired, said Kelly Kraft, Gov.
Pat Quinn's budget spokeswoman.
The tax increases, set to expire by the end of 2014, are
estimated to bring in about $7 billion to the state's coffers.
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 Tax tweaks
The GOP's effort to roll back the taxes immediately has not
gained traction in the Democratic-controlled Legislature and would
require Quinn's signature.
"Raising the income tax was the first of many difficult
decisions," said Rikeesah Phelon, a spokeswoman for state Senate
President John Cullerton, D-Chicago. "It's not clear that
Republicans are willing to join us in making tough choices about
cuts, old bills or revenue in the coming years. What is clear is
that their call for a premature repeal of the temporary tax doesn't
get us any closer to solid financial footing."
Even so, lawmakers have tweaked the year-old tax increase in
response to some heavyweight companies' threats.
The Legislature passed a $250 million tax break package for
businesses in December after CME Group, which owns the Chicago Board
of Trade and the Chicago Mercantile Exchange, and the national
retail company Sears Corp. threatened to leave the state.
CME Group and Sears will see annual tax breaks of about $100
million annually over the next decade.
Many Republicans said the legislation was "crony capitalism."
Shortly after the package passed, GOP members of the Illinois
House introduced legislation to roll back the corporate income tax
rate from 7 percent to 6 percent, a 14 percent decrease, starting
Jan. 1, 2013. On Jan. 1, 2014, the rate would return to 4.8 percent,
an additional 20 percent reduction.
All told, the GOP legislation would cost the state about $4.8
billion in revenue.
House Republican Leader Tom Cross, R-Oswego, said his party's
plan would make up for the lost revenue by paving the way for more
jobs and thus more people paying the income tax.
Rolling back the tax increases "would send a good sign," Maisch
said. "But I believe that there is no one perfect answer. There
still needs to be a re-engineering of state government, with pension
reform at the top of the list."
Giertz comes down between the claims of the business community
that the state has lost a year of job creation and the Quinn
administration's claims that the income tax saved the state from
certain doom.
"Illinois was in a really bad situation a year ago, and it's
still in a really bad situation now," Giertz said. "It's been kind
of a wash."
[Illinois
Statehouse News; By ANDREW THOMASON and ANTHONY BRINO]
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