Illinois Raises Taxes to Bring Down State Deficit

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The Illinois State Legislature has approved a measure to raise its taxes dramatically in order to try to bring down the state budget deficit.

The Prairie State was facing an expected budget deficit of $15 billion for the coming, equivalent to more than half the state's general fund. Officials warned that state government might not be able to pay its employees.

The state income tax rate will increase by two-thirds from 3 percent to 5 percent. Corporate tax rates will also rise from 4.8 to 7 percent. Both tax increases will last four years when Democratic Gov. Pat Quinn signs the bill into law.

Democrats voted for the increases after the election, but before the new state legislature was seated. No Republicans voted for the measure

Neighboring states are happy because they expect businesses to leave Illinois and move to their states.

"It's like living next door to "The Simpons" - the dysfunctional family down the block," Indiana Gov. Mitch Daniels told Chicago's WLS-AM.

"Years ago Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, `Escape to Wisconsin,'" Wisconsin Gov. Scott Walker said in a statement. "Today we renew that call to Illinois businesses, `Escape to Wisconsin.' You are welcome here."

But economic experts say income taxes are just one piece of the puzzle when businesses decide where to locate or expand, they said, and states should be cooperating instead trying to poach jobs from one another.

"The idea of competing on state tax rates is. hopelessly out of date," said Ed Morrison, economic policy advisor at the Purdue Center for Regional Development. "It demonstrates that political leadership is really out of step with what the global competitive realities are."

Some Illinois Democrats worry that jobs will leave their state.

"Businesses don't have press conferences like this and announce they're moving 50 people out, 60 people out, 70 people," Chicago Mayor Richard Daley said at an event in Chicago.

But Illinois' governor rejected the idea that the increase would allow other states to lure jobs away. "Lots of luck to them, but that's not going to happen," Quinn said at a news conference Wednesday.

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