Indiana has had more than a little success in attracting businesses to head immeditely east — from Illinois to the Hoosier state. A Rockport Register Star political reporter says the numbers show just how bad the situation is in his home state.
The Land of Lincoln is a tough place to do business to be sure.
For example, Office Depot has been capturing plenty of headlines. The company recently merged with OfficeMax, and its executives were pondering whether to use OfficeMax’s Naperville headquarters or Office Depot’s Boca Raton, Fla., site.
The Sunshine State won out. It’s not hard to figure out why.
- Illinois has a corporate tax rate of 9.5 percent (7 percent income, 2.5 percent personal property replacement tax) while Florida has a 5.5 percent corporate tax rate.
- Illinois has a personal tax rate of 5 percent while Florida has none.
- For every $100 worth of payroll, Illinois employers pay an average of $2.81 for workers’ compensation insurance, compared to $1.84 in Florida.
- Illinois’ minimum wage is $8.25 per hour, compared to $7.79 in Florida.
You see, it’s not just Florida that Illinois has trouble competing against. It’s just about every state that has a leg up on the Land of Lincoln.
- A study conducted by the state of Oregon found that Illinois has the fourth-highest workers’ compensation rates in the nation.
- Illinois also has the fourth-highest minimum wage in the nation.
- Illinois’ corporate tax rates rank, you guessed it, the fourth-highest in the nation.
- Given these numbers, it’s little wonder that Illinois has the 11th-lowest rate of entrepreneurship in the U.S., according to the Kauffman Entrepreneurial Index.
And small businesses are the major job generators in the economy.
According to the U.S. Small Business Administration, small firms employ just more than half of the private sector workforce and created nearly two-thirds of nation’s net new jobs over the past 15 years. Please keep in mind, every big company started out small.
Indiana has, in non-technical terms, a pretty darned good business tax climate. The organization I work for, the Indiana Chamber, can take at least some of the credit for that with various reform measures it has helped move through the legislative and regulatory process over the years.
One of the few blemishes, however, has been a corporate income tax rate that ranks among the top 10 in the country. Legislation is on the table to reduce that rate from 8.5% to 6.5%. If it takes place right away, a corresponding elimination of some tax credits will make it revenue neutral — in other words, no impact on the state budget. The talk lately has been a potential four-year phase-in, starting in 2013. Either way, the move would be a good one for both attracting and retaining well-paying jobs in our state.
Our most recent poll question asked how important this tax reduction would be to your organization. Based on the responses, pretty darned important. Two-thirds of you answered "5" or "4," with five being the most important on the five-point scale. Less than one-quarter (23%) answered "1" or least important, likely due to having a tax status that would not benefit from the reduction.
C corporations would realize the savings. And while the word corporation is in the name, that indicates the tax status — not the size of the business. A vast majority of the C corporations in the state are small businesses, ones that would truly benefit from the reduction.
The upper right corner of this page has our new poll question, asking which of four legislative priorities the Chamber should continue to pursue. As always, we appreciate your input.
Overall, Indiana has a very competitive business tax climate. That is thanks to the 2002 elimination of the inventory tax (like most other states had already done) and additional measures.
Concerns, however, remain. They include:
- Many states do not have a personal property tax on machinery and equipment. Indiana does. These taxes hinder innovation; an alternative is to tax the income and sales that are produced
- Indiana’s corporate income tax rate of 8.5% is ninth highest in the country, a disincentive for new or expanding businesses
- The classification system that would emerge if proposed differential property tax caps are approved
The cap argument was at center stage throughout the 2008 General Assembly, and it will return in 2009. Homeowner property tax relief was critical, but it should not come at the expense of future business development. If business property is subject to different tax treatment in the constitution, spending interests will return seeking more. The 3% business property tax cap (even higher in 2009) would be the third highest rate in the country.
The constitutional guarantee of uniform and equal assessments and taxation was a wise one. Instead of unequal caps, let’s enhance spending controls, enact the efficiencies laid out by the Kernan-Shepard Commission and improve the tax climate for all.
The latest Letters to Our Leaders installment offers the details. Read the letter (and others in the series); watch the one-minute video below; offer your comments.