Fiscal discipline in Illinois

Cite this Article
Larry Ribstein, Fiscal discipline in Illinois, Truth on the Market (March 28, 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.