 President Donald Trump’s newly unveiled tax plan will have a substantial impact
on Illinois families and the state economy.
Illinois can flourish under federal tax changes if state government gets its
house in order. But if Springfield is caught unprepared, more Illinoisans will
likely leave the state.
Some provisions of Trump’s plan will strengthen Illinois’ economy, while others
will expose how uncompetitive Illinois is compared to low-tax states. The most
important changes that will affect Illinois are Trump’s corporate tax reform,
the repeal of the state and local tax deduction, and the repeal of the death
tax.
Local lawmakers should consider Trump’s plan and position the state to thrive
under federal changes.
A cornerstone of the Trump plan is to dramatically lower the corporate tax rate
and end the double taxation of profits earned overseas. Trump’s plan would end
the tax code quirks that have driven American headquarters abroad.
Corporate tax reform is a winner for Illinois. Gone will be the days when
Walgreens considered relocating to Switzerland to avoid America’s senseless
corporate tax code. Illinois should benefit more than most states from corporate
reforms.
The Land of Lincoln is the proud home of 36 Fortune 500 companies and is
undeniably an attractive corporate hub. Global names like Walgreens and
McDonalds call Illinois home and industrial giants like Caterpillar and ADM make
their headquarters here.
Corporate investment and high-paying corporate jobs will come to the U.S. as a
result of Trump’s changes, and Illinois will profit.
However, Trump plans to pay for his tax cuts by removing tax deductions, also
known as tax loopholes. Illinoisans would lose a valuable tax loophole under
Trump’s plan, because he zeroes out the state and local tax deduction.
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The state and local tax deduction allows Illinoisans to reduce
their federal tax burden by the amount they pay to state and local
governments. Eliminating this deduction will increase the “felt
cost” of Illinois’ expensive state and local spending.
Illinois is a high tax, high-income state, and Illinoisans rank
No. 10 among all states for gaining from the state and local tax
loophole, according to IRS tax files. If the state and local
deduction is removed, high tax states like Illinois will become less
attractive while low-tax states like Indiana, Texas and Tennessee
will become more attractive.
Illinois families who itemize their tax returns will soon have to
pay full freight on their skyrocketing property taxes, sales taxes
and income taxes. Suburban communities will be hit hard if
homeowners lose the valuable property tax deduction. IRS files show
that Lake County and DuPage County will lose the biggest deductions.
State government needs to work double-time to reduce the tax burden
for Illinois families. The first priority should be property tax
relief to protect homeowners and home values.
Finally, Trump plans to repeal the federal death tax. Illinois
should follow suit by repealing the state’s death tax. Otherwise,
Illinois will stick out as one of the few states with a death tax,
and wealthy Illinois estates will have more reason to relocate. They
will be able to deduct Illinois’ state death tax against the federal
death tax if there is no federal death tax. But a move to Indiana,
Wisconsin or any southern state will relieve them of the tax and
compliance burden altogether.
Federal tax reform sets the table for Illinois to get its house in
order. Lawmakers can remove the pain points from Illinois’ tax code
and make the Land of Lincoln a better place to call home.
Paul Simon Institute polling indicates that high taxes are the
most-cited reason to leave Illinois. Illinoisans will be under
increasing pressure to find a lower tax home unless state lawmakers
take action to get Illinois’ fiscal house in order.
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