Fiscal discipline in Illinois

Larry Ribstein —  28 March 2011

Last January I commented on the Illinois tax increase of personal income tax rates from 3% to 5% and corporate taxes from 4.8% to 7%:

Detroit would seem to be a good example to keep in mind when thinking about Peoria without Caterpillar.  Remember that any company considering moving to or staying in Illinois not only has to pay corporate-level taxes, but has to pay its executives about $4,000/year more just to make up for Illinois income taxes in order to provide the same compensation as it did last year.

From today’s WSJ:

Doug Oberhelman, chief executive officer of the giant Peoria, Ill.-based maker of construction and mining equipment, protested against the state’s tax and spending policies in a March 21 letter to Illinois Gov. Pat Quinn* * *

In the letter, * * * Mr. Oberhelman said other states have stepped up their efforts to lure Caterpillar investments since Illinois raised income tax rates in January.

“I want to stay here,” the letter said. “But as the leader of this business, I have to do what’s right for Caterpillar when making decisions about where to invest. The direction that this state is headed in is not favorable to business, and I’d like to work with you to change that.” * * *

The Illinois tax increase will cost Caterpillar’s 23,000 employees in the state about $40 million this year, said Jim Dugan, the company’s chief spokesman. * * *

Caterpillar’s 23,000 employees in Illinois account for about 22% of its global work force. In recent years, the company has done much of its investing in other parts of the U.S., mainly in areas where unions are weak, as well as in Asia and Latin America.

Potential exit of firms can be a powerful way to discipline a state where political discipline is profoundly weak.  If you don’t believe this, try driving through Peoria and imagining what it would be like without Caterpillar.

Larry Ribstein

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Professor of Law, University of Illinois College of Law

One response to Fiscal discipline in Illinois

  1. 

    True to his wild diconnect with reality, Governor Quinn (at about the same time he received this letter) held a press conference to announce funding for high speed rail. Speaking to reporters in the Capitol on Thursday about the Chicago-St. Louis route, Quinn said, “We want to make this corridor the pre-eminent one in America. …The key route is Chicago to St. Louis. We want to get Cubs fans down to Busch Stadium faster so they can see better results than they’ve seen in recent years.”