While Illinois’ flat income tax is simple and a benefit in the eyes of tax experts, the state’s highest-in-the-nation property taxes continue to hold the Land of Lincoln down.
The Washington, D.C.-based Tax Foundation’s 2017 State Business Tax Competitiveness ranking puts Illinois at No. 23 for overall tax climate.
Tax Foundation Policy Analyst Jared Walczak said one of Illinois’ strong points is the flat income-tax rate for individuals and corporations, “which has a lot of simplicity associated with it and a lot of predictability. It’s even harder to change the rates of a single rate tax or, of course, you’re changing that for everyone, so there’s a sort of lock-in effect.”
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But the state has some weak points, Walczak said.
“Illinois’ taxes fall very heavily on capital, so in some ways, that is holding back growth, and we especially see that with high property taxes, that capital stock tax.”
The Land of Lincoln ranked No. 10 for individual income tax structure, but No. 46 for its high property tax.
Walczak said Indiana is doing much better across the board with “a low neutrally applied rate,
broad-based, low rate. You see the same thing with the individual income tax. You see a fairly good sales tax system there. Indiana is really the shining example in the region and a state that conducted tax reform fairly recently.”
Indiana ranked No. 8 overall. At No. 15, Missouri also ranked higher than Illinois.
Walczak said businesses look for where they can invest and grow, and confusing, high-tax-burden states are not attractive. The best-ranked states have simple tax codes with few carve-outs, Walczak said.