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Illinois tax hikes give Indiana competitive advantage

Illinois tax hikes give Indiana competitive advantage

INDIANAPOLIS — The personal and corporate income tax rate increases enacted last week by the Democratic-controlled Illinois General Assembly — over the veto of Republican Gov. Bruce Rauner — could be a boon for Indiana.

"We've had a lot of businesses from Illinois looking at Indiana in the past because of our business climate," said Abby Gras, spokeswoman for the Indiana Economic Development Corp., the state's commerce department.

"We would expect that to continue as Indiana continues to focus on ensuring that we're a state that works for business."

The Illinois tax hikes, which are retroactive to July 1, boost the state's personal income tax rate to 4.95 percent from 3.75 percent, and increase the effective corporate income tax rate to 9.5 percent from 7.75 percent.

Together they are expected to raise about $4.75 billion a year in badly needed new revenue.

Combined with $2.5 billion in spending cuts, also approved last week over the governor's veto, Illinois should be on track to reduce its $15 billion backlog of past-due payments to schools, social service agencies and numerous other state vendors.

However, Illinois' personal income tax rate now significantly exceeds the 3.23 percent assessed on Indiana incomes.

The Indiana rate actually declined Jan. 1 from 3.3 percent when the last bit of former Gov. Mike Pence's 2013 tax cuts finally took effect.

Though, as Illinois boosters are quick to point out, when Indiana's county income taxes are added to the state rate there is a rough equivalence between Illinois' 4.95 percent rate and most Indiana counties.

For example, Lake County imposes a 1.5 percent income tax on its residents. As a result, they pay a combined 4.73 percent income tax rate — nearly the same as Illinois, which does not permit county income taxes.

Porter County remains a bargain with a combined state and county income tax rate of 3.73 percent. It's 4.18 percent in LaPorte County and 4.23 percent in Newton County.

Jasper County exceeds Illinois with its combined income tax rate of 6.094 percent, as does Marion County (Indianapolis) at 5 percent.

Indiana unquestionably has the upper hand over Illinois on corporate income taxes.

The Indiana rate stands at 6 percent after dropping from 6.25 percent on July 1.

It's scheduled to continue declining in quarter-point increments over the next four years until settling at 4.9 percent in July 2021.

Moreover, the Republican-controlled Indiana General Assembly has vowed not to tinker with the planned rate cuts, except possibly to make them larger or take effect sooner, giving Hoosier companies the tax certainty that many look for when hiring or planning long-term investments.

That really hasn’t been an option for businesses in Illinois where lawmakers have allowed the effective corporate income tax rate, including the state's 2.5 percent personal property replacement tax, to fluctuate from 7.3 percent prior to 2010, up to 9.5 percent in 2011, down to 7.75 percent in 2015 and now back up to 9.5 percent.


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