I have a new paper out today with the Illinois Policy Institute, outlining ten reforms that would improve the state’s tax code and make the state more economically competitive.
At this point, you might stop reading because, statistically speaking, you probably don’t live in Illinois. And that’s fair! But while each state’s economy and tax code is different (which tax reform proposals must take into account), states can also learn from each other. Some of this analysis might prove relevant in your state, too.
You can find the full paper here. These are the ten issues it covers:
Eliminating the throwback rule, which raises little revenue but makes it hard for some remaining businesses, especially small manufacturers, to operate in Illinois, because it imposes Illinois’ high tax rates on all income not taxed by another state.
Providing first-year expensing for machinery and equipment to eliminate the current tax code’s bias against capital outlays and treat these investments like other ordinary business expenses.
Evaluating economic development incentives, curtailing the least efficient credits and reforming others to yield a better return on investment and free up revenue that could provide broad-based tax relief.
Decoupling from a tax on international income (NCTI) that distorts the federal-level tax it attempts to copy and increases costs for Illinois businesses and consumers.
Permanently uncapping net-operating-loss (NOL) deductions to ensure that businesses don’t face effective rates well in excess of the actual statutory tax rate, and to eliminate a particularly egregious penalty on startups.
Repealing the corporate franchise tax, an antiquated tax that imposes high compliance costs and is levied without regard to ability to pay.
Modernizing the sales tax base to make the tax fairer and more economically neutral, and to pay for reductions in the tax rate.
Repealing the estate tax, which drives many high-net-worth households out of the state in the final years of their lives, harming the state’s economy and depriving the state of other tax revenue from them in those years.
Expanding property tax levy limits, stripping out restrictions that have rendered them largely ineffective and turning these limits into a meaningful tool to rein in property tax burdens.
Reforming unemployment insurance taxes to better align them with the overall policy goal of reducing unemployment.
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