Home > Blog > Budget > Don’t launch another torpedo at Illinois’ finances

Don’t launch another torpedo at Illinois’ finances

Cutting the corporate income tax in half – from 7 percent to 3.5 percent – as House Speaker Michael Madigan recently proposed – would significantly worsen Illinois’ already dire financial outlook and force even deeper cuts to key areas, such as education, that are important for the state’s long-term economic growth.

Revenue-Loss-Cutting-Corp-Income-Tax

The annual revenue losses and resulting cuts to services would quickly add up. Over the next three fiscal years, the state is likely to lose well over $5 billion in revenue if the corporate income tax is slashed, according to Fiscal Policy Center estimates based on data from the Governor’s Office of Management and Budget.

The combined pain of deep budget cuts to essential services and rapid deterioration of the state’s finances – just when the state is beginning to make some progress digging out of its hole – mean that cutting the corporate tax rate will harm, not help, our economy. 

To understand why, just take a look at the state’s still-precarious situation:

  • Illinois still has billions in unpaid bills. Despite having paid down billions in outstanding bills, the backlog is still expected to be over $5 billion by the end of this fiscal year. 
  • Key investments such as education have been cut deeply in the last few years. Illinois has cut almost $1 billion from K-12 and higher education between FY 2009 and FY 2013. Other important state investments, such as afterschool programs and prenatal services, have also seen huge cuts.
  • Illinois’ credit rating is the worst of any state. The major credit rating agencies have explicitly warned that collapsing revenue will likely lead to more credit rating downgrades. Further downgrades would increase the cost of financing infrastructure projects – like major road and bridge repairs – that help generate economic growth. It also would further harm Illinois’ already battered reputation.

The corporate income tax cut would make all these problems worse by launching another torpedo at Illinois’ finances and significantly increasing uncertainty for businesses. Furthermore, the link between corporate tax cuts and economic growth is negligible.

Rather than acting on the mistaken belief that cutting corporate taxes will spur economic growth, lawmakers should instead take a broader view of what it means to be “business friendly.” In survey after survey, business leaders say they want high-quality infrastructure and an educated workforce that allow them to compete. To meet these needs, our state needs to be spending more, not less, on improving our transportation systems and educating children from the earliest age.

The way to get Illinois back on track is to maintain stable and sustainable revenue, pay our state’s bills, and prevent further harmful cuts to areas like education that are crucial to our future economic growth.

Print Friendly

Leave a Reply

 characters available