Shortly after Illinois Governor Pat Quinn, Speaker MichaelMadigan, and Senate President John Cullerton rammed through a $7 billion income tax hike, the largest in state history, Scott Walker, Wisconsin’s newgovernor, had three words for Illinois businesses: Escape to Wisconsin. Thephrase comes from an old Wisconsin tourism campaign. But the phrase is veryappropriate for right now.
Illinois’ multi-billion dollar tax hike, which includes a 46% increase in the state’s corporate income tax, will fall heavily on Illinoisbusinesses. In fact, according to the Tax Foundation and the Illinois Policy Institute, the corporate income tax rate, when combined with the federalcorporate income tax and property replacement tax, gives Illinois the dubioushonor of having the highest corporate income tax in the industrialized world.No wonder then that employees of Illinois-based heavy manufacturer Caterpillar sent 1,200 e-mails in opposition to the tax hike to just one state lawmaker.
Now that Illinois’ lawmakers have decided to increase thecost of doing business there, officials in other states like neighboringWisconsin are trying to lure business away by emphasizing lower taxes relativeto Illinois. Walker has proposed a complete elimination of the corporate incometax for two years for firms that move to Wisconsin. He is also pushing a seriesof proposals to reduce state spending and limiting tax increases.
Of course, Wisconsin’s Walker will not be the only stategovernor looking to take advantage of Illinois’ recent actions. Indiana’sgovernor Mitch Daniels, who has made a name for himself by pairing backspending, reforming health care, and signing budgets without tax increases, hastalked about tax reform and has extended an invitation for Illinois businessesto relocate to the Hoosier state. Michigan’s Rick Snyder is already working ona proposal to reform his state’s dreaded business tax surcharge, which manyobservers say has stifled job growth in the state. Even Chris Christie in far away New Jersey has been promoted his state as a haven for businesses who wantto flee the tax and spend culture in Illinois.
Of course, as businesses flee Illinois it will only meanless revenue for the state as the taxpayers Quinn, Madigan, and Cullerton arecounting on to finance their overspending take their money elsewhere.
One of the great things about our federal system is that isallows states to experiment and compete, which yields the best ideas andpolicies. When a state does something right, it is copied widely. But when astate does something wrong, states avoid it or poach from its mistakes. Giventhe reaction so far, Illinois has clearly done something wrong with increasingtaxes and other states will take full advantage of it.