Progressive income tax would put heavy burden on small Illinois business

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by Bryce Hill, Senior Research Analyst
Illinois Policy

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COVID-19 and state-mandated restrictions already damaged Illinois small businesses, but the extra challenge of a 50.3% marginal income tax rate awaits if Gov. J.B. Pritzker’s "fair tax" is added to their state and federal income tax burdens.

Despite wide-spread agreement that you should not raise taxes during an economic downturn, Pritzker insists Illinois needs his $3 billion income tax hike now more than ever. But massive job losses and stubbornly high unemployment rates mean there might not be a worse time for a tax hike. Hiking taxes during a recession, or just as the economy attempts to get back on its feet, would be a clear policy mistake. One reason is the income tax hike would hit the state’s largest job creators – small businesses – the hardest.

Small businesses are responsible for 60% of the net job creation in Illinois and are the businesses most at risk from the economic fallout of COVID-19. Changing to a progressive income tax in Illinois could mean a massive tax hike for these businesses and create marginal income tax rates in excess of 50% when all state and federal income taxes are included. Research has shown an increase in the top marginal tax rate is associated with a decrease in hiring activity of entrepreneurs and lower wages for their employees.

When considering all of the layers of income taxes Illinoisans face, small businesses – who pay taxes as individuals – could be left paying 50.3% of their top-end income in taxes. Total marginal income tax rates would range from 31.6% to 50.3% thanks to federal income tax, Social Security tax, Medicare tax, state income tax, and Illinois’ Personal Property Replacement Tax.

The increase in the state income tax from the current flat rate of 4.95%, to up to 7.99% under the progressive income tax, would mean that some small businesses would face a state income tax hike 5 times larger than big businesses.

While the total corporate income tax rate – including the Personal Property Replacement Tax – will be hiked by 10% (from 9.5% to 10.49% when including the replacement tax), the tax hike for pass-throughs could be up to 47% (6.45% to 9.49% when including the replacement tax).

Research from April showed fewer than half of all U.S. small businesses expected to re-open this year if the crisis lasted more than four months. For the small businesses that do manage to survive, the last thing their owners and employees need is a tax hike to crush them while they’re attempting to get back on their feet.

Small businesses such as S-corps, partnerships, LLCs, and sole proprietors make up a large majority of business establishments in Illinois, representing 71% of all private for-profit businesses, totaling more than 210,000 establishments. These small businesses also employed nearly half of Illinois’ private for-profit workforce prior to the COVID-19 downturn, or more than 2.3 million Illinoisans.

Contrary to the governor’s claims, a progressive income tax hike is the exact opposite of what Illinois lawmakers should be doing in the midst of the COVID-19 crisis.

Nearly 700,000 Illinoisans remain out of work as a result of the pandemic. That is after the first year on record in which Illinois lost private-sector jobs amid a national boom.

Imposing marginal tax rates exceeding 50% for Illinois’ largest job creators during the current economic crisis would be a painful mistake.

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Originally published by Illinois Policy on October 8, 2020. Published by permission.

Photo of the Day - October 12, 2020

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SJO piles on the TD

St. Joseph-Ogden's Lucas Gones races to the end zone on a long punt return on October 17, 2009. The senior was tripped up short of the TD but scored later in the home game on a pass from quarterback Blake Hoveln. The victory also clinched SJO's 19th consecutive playoff appearance with their 41-7 win Saturday afternoon.

(Photo: PhotoNews Media/Clark Brooks)

Village sewer rate increase goes into effect in St. Joseph

At the beginning of this month a scheduled sewer rate increase went into effect for the Village of St. Joseph. The new rates will be reflected on residents' upcoming November billing.

The schedule rate increase, approved in April 2019 by the St. Joseph Board of Trustees and put on hold due COVID-19 pandemic, will pay for upgrades as the aging plant nears its maximum operating capacity according to a release from the village.

The 15-year plan created last year is a detailed road map to ensure costs, operating expenses and plant capital maintenance needs are met to keep pace with the community's growth. The plan included incrementally increasing rates, which will be determined annually by the board, on a yearly basis rather of one or more large jump in monthly fees.

While the increase will impact low volume users minimally, heavy users will see likely see a noticeable change on their statements.

The new rate, starting on October 1, is $17.50, up from $15.00, for the first two units. Each additional unit used will be billed at at $1.75 more then the previous amount of $5.25 at $7.00 each.

Unity takes 2nd at conference meet, SJO girls 5th

Unity's Taylor Joop runs the first lap around the course at the 2019 IHSA cross country state meet. Joop finished in 9th place at Saturday's Illini Prairie Conference meet in St. Joseph.

Photo: PhotoNews Media

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Fourteen area long distance runners competed in this year's Illini Prairie Conference meet held Saturday at the Woodard Family Park and Sports Complex. By the time trodden grassy surface settled, the Unity girls cross country squad learned of their second place team finish via 45 points tallied in the team competition. Ninety-six points behind them, host St. Joseph-Ogden finished in fifth place with 136.

Individually, Rockets' Erica Woodard paced all area runners around the course closing out her race in 18 minutes, 18 seconds for a fourth place overall finish. Nearly a minute later, teammates Caelyn Kleparski (8th) and Taylor Joop (9th) crossed the finish line at 19:12 and 19:15, respectively.

Ava Knap let the Spartan contingent finishing the 3-mile course with a time of 20:19.21. She was followed over the line by Helene Jones and Chloe Burkholter to round SJO's top three finishers. Jones finished two spots behind Knap in 23rd place overall. Meanwhile, Burkholter ended her run 30th out of 56 runners on Saturday.

This year's meet champion was Monticello with 29 points. Olympia won third place honors with a score of 90 points.

Illini Prairie Conference meet results:

4	Erica Woodard	Unity	18:18.00
8	Caelyn Kleparski	Unity	19:12.99
9	Taylor Joop	Unity	19:15.09
11	Elizabeth Hulick	Unity	19:26.23
13	Olivia Shike	Unity	19:38.08
16	Malla Fairbanks	Unity	19:55.97
20	Ava Knap	SJO	20:19.21
22	Helene Jones	SJO	20:28.93
26	Audrey Remole	Unity	20:45.34
29	Chloe Burkholter	SJO	20:58.85
31	Malorie Sarnecki	SJO	21:03.39
34	Kailyn Ingram	SJO	21:11.77
35	Addie Allen	SJO	21:22.56
39	Ashlyn Lannert	SJO	21:49.06