High Illinois taxes drive out business

Although Chicago provides many advantages for businesses, its high taxes and extensive regulations drive many entrepreneurs into Indiana. Image: The Chicago River flows through the heart of the city. (Photo Credit: Jackson Elliott)

By Jackson Elliott
Medill Reports

Scott Schnurr wanted to buy a fully equipped 30,100 square-foot building in the Chicago suburb of Naperville, but high property taxes convinced him to look for real estate elsewhere.

The building had stood empty for two years. If not for the taxes, it could have housed a hundred jobs for Schnurr’s water heater installation company, DRF Trusted Property Solutions.

The property taxes on the building were around fifty thousand dollars. “On a 10% profit, I’d have to do five hundred thousand dollars of business just to pay the taxes to be there,” the chief executive said.

Schnurr said he planned to open a call center in Indiana instead because of the state’s tax incentives. “We went through the process to see if Illinois would match things to keep the jobs there, but Illinois said no,” he said.

Illinois is home to the city of Chicago, the largest population in the Midwest, stellar colleges, a world-class airport and a location that connects the nation’s east-west rail lines. But businesses are leaving the state because of its high taxes, rising minimum wage and expensive regulations.

The state is the 6th biggest state in terms of population, but it ranked 31st in total employment growth in the first quarter of 2019, according to the Bureau of Labor statistics. Neighboring Indiana achieved nearly three times Illinois’ job growth with a little more than half its population.

For some businesses, income taxes and a high minimum wage can be the decisive factor that persuades them to leave Illinois despite its advantages as a transportation and population hub.

Illinois Manufacturers’ Association CEO Mark Denzler said that if Governor J.B. Pritzker’s proposed progressive income tax passes voters in November 2020, Illinois will have the third-highest corporate tax rate in the country and the second-highest property tax rate in the country.

“Raising income taxes is not going to attract jobs and investment to Illinois,” he said. “It’s going to drive job creators away.”

In a press conference announcing the proposed new tax, Pritzker said that “Instituting a fair tax as I’ve proposed will improve the arc of our state’s finances forever and will make our state more fair for everyone.”

Imperial Shoe Crafters owner and founder Mercedes Chaca said high taxes affect people who start businesses, and she faces business challenges that Pritzker does not face. The billionaire governor inherited his money from his family’s Hyatt Hotel chain.

“When you already have money there’s nothing that is difficult for you, but when you’re starting, you have to look around and see what you can do,” she said in Spanish. “I think it’s a little bit different from people that have money and people who just started a business because of their own work.”

Denzler said that the state’s planned minimum wage increase from $8.25 to $15 an hour by 2025 will also persuade businesses to leave. The average minimum wage in the states surrounding Illinois is $7.52, half of what Illinois law would demand.

“Ask any business if they can work with an 82% increase in labor cost, the answer’s going to be no,” he said.

The 82% increase from the present minimum wage doesn’t just affect the lowest-paid workers, Denzler said. Skilled employees, who currently make $15 an hour or more, will demand payment above the new minimum wage. To make up for the higher labor costs, businesses may have to raise prices for consumers.

“Two thirds of our population live within 45 minutes of a border. If it’s substantially higher, people will go across borders,” he said. “People do that all the time. People vote with their feet.”

In Quincy, residents regularly cross the border to Missouri to buy gasoline, cigarettes and alcohol because of the lower tax, Denzler said. When a flood in 1993 cut off the city’s bridges, sales tax revenue doubled.

“Illinois has so many things going for it,” Denzler said, adding that the higher taxes earn the state less money. “We are so well-positioned to be an economic engine not only for the Midwest but for the United States.”

High workers’ compensation laws also make Illinois less attractive for businesses. When workers get injured on the job, Illinois companies have to pay more to compensate them.

“The claimant is going to get two-thirds more settlement in Illinois versus Indiana,” said insurance broker Bill Owens, founder of The Owens Group. “You wonder why people are moving to Indiana? It’s because of the tort limitation, it’s because of the work comp laws.”

For instance, an Indiana train derailment that killed seven people in 1993 cost the train’s owners around $2.2 million because of tort limitations in the state, he said. In Illinois, a similar accident cost nearly $100 million.

“We are a legal mess here. People need to come together and address these problems, and leadership needs to step up,” Owens said.

Photo at top: Although Chicago provides many advantages for businesses, its high taxes and extensive regulations drive many entrepreneurs into Indiana. Image: The Chicago River flows through the heart of the city. (Jackson Elliott/MEDILL).