* Illinois business leaders balk at proposed tax hike
* Chamber of Commerce says companies could leave Illinois
By Kyle Peterson
CHICAGO, Jan 12 (Reuters) - Illinois companies hit by an extended economic downturn say the state’s proposed remedy to its own financial crisis -- a beefy tax increase -- will deplete investment in local businesses, trigger job losses and force companies to leave the state.
Their outrage followed an income tax increase that passed the Illinois House and Senate on Wednesday.
The measure, which would raise the individual income tax rate temporarily to 5 percent from 3 percent and the corporate tax rate to 7 percent from 4.8 percent, is now headed to the desk of Governor Pat Quinn, who supports the measure.
The legislation would raise about $6.8 billion a year.
“There is generally a sense of shock that taxes have gone up as much as they have,” said Todd Maisch, vice president of government affairs for the Illinois Chamber of Commerce. “It’s hard to quantify at this point, but we expect it to have a very negative impact,” he said.
“During the debate, legislators they said that they had heard from businesses in their districts over the weekend that if something like this went through, they were going to have employers move across state lines,” he said.
Maisch said the increase would raise Illinois’s corporate tax rate higher than that of several neighboring states. When a 2.5 percent personal property replacement tax is factored in, the rate would be 9.5 percent, compared with 7.9 percent in Wisconsin, 8.5 percent in Indiana, 6 percent in Kentucky, 4.95 percent in Michigan and 9.8 percent in Minnesota.
William Brodsky, chief executive of CBOE Holdings (CBOE.O), said that while the fiscal woes of Illinois have not yet crimped his ability to recruit talent, they will do so.
“We’re greatly disappointed at the lack of a comprehensive approach to our state’s dire financial situation,” Brodsky said by email.
“Merely throwing tax dollars at a broken system, without overhauling the expense side of the ledger, compounds the problem and undermines the financial recovery for every business and citizen in our state,” he said.
Other states such as California and New York may also be in fiscal straits, he said, but they have natural enticements that will keep talent coming anyway. Illinois needs to be able to offer more, he said last month. “They don’t come here for the weather, I tell you.”
Brodsky was on a committee that helped convince Boeing (BA.N) to move its headquarters to Chicago some years ago, he said. Faced with the probability of higher taxes and a broken state budget, he said, companies seeking new locations for their headquarters today will likely look elsewhere.
A Boeing spokesman said the company did not see a significant impact on its operations from the increase.
In a Tuesday opinion piece in the Chicago Tribune, Doug Oberhelman, CEO of Caterpillar Inc (CAT.N), disagreed.
“It’s no secret that when making investments, businesses have to consider the costs,” Oberhelman wrote. “And states with lower-cost environments provide an opportunity for business and their employers to succeed. That’s not the type of environment we are creating in Illinois with these tax proposals.”
Illinois, which faces a budget gap that could grow to $15 billion, is one of many U.S. states grappling with record budget deficits after the deep recession stunted tax revenue.
It is considered one of the weakest states after years of what critics say was mismanagement of state finances.
“To have a strong economy, you have to have the state of Illinois in fiscal good shape,” Quinn told reporters on Wednesday.
Wisconsin Governor Scott Walker was quick to pounce on the potential benefits to his state saying: “Wisconsin is open for business.”
“In these challenging economic times while Illinois is raising taxes, we are lowering them,” he said in a statement. (Additional reporting by Ann Saphir and Karen Pierog) (Reporting by Kyle Peterson, editing by Dave Zimmerman)