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Illinois Tax Increase 66%: More States to Follow?

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By Minara El-Rahman on January 13, 2011 5:47 AM

An enormous Illinois tax increase is making news and has some wondering if other states will follow suit.

Legislators approved a massive Illinois tax increase on income tax, Reuters reports. The Illinois House passed an income tax increase that is aimed to help the state tackle its $13 billion deficit. The measure passed by a tight margin of 60 to 57 and was sent to the Illinois Senate where it's predicted to pass, according to the Wall Street Journal.

The legislation would increase the income tax rate from 3% to 5%. The state's corporate tax would jump from 4.5% to 7%. Illinois is just one of many U.S. states that are struggling with massive debt. At least 40 states have projected budget gaps for the upcoming fiscal year, NPR reports.

While most of those states will cut state services or take other actions, Illinois is one of the few states taking making such a drastic tax increase.

Not all legislators in Illinois were on board for the tax hike. "No state ever taxed its way into prosperity," State Senator Kirk Dillard told Reuters. Republicans cautioned that the tax increases would just compel residents and businesses to leave Illinois. "Illinois has been an economic boon to Florida. Through a slow drip, we've lost thousands of taxpayers. If this bill passes, it will probably burst the pipes," Collin Hitt director of policy for the Illinois Policy Institute told the Wall Street Journal.

It seems unlikely that other states in debt will follow Illinois' suit. In fact, neighboring states such as Wisconsin are now offering tax incentives for businesses that relocate to Wisconsin from other states, the Huffington Post reports. "Years ago Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, 'Escape to Wisconsin. Today we renew that call to Illinois businesses, 'Escape to Wisconsin.' You are welcome here," said Republican Wisconsin Gov. Scott Walker in a released statement.

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