Blame high taxes, excessive regulations for businesses fleeing Illinois
Illinois has a remarkable entrepreneurial spirit, but too many of our businesses don’t stay.
In the past several years, companies including Takeda, Caterpillar, Highland Ventures and Tyson have all fled Illinois’ suburbs and moved their headquarters out of state.
The problem is not ambition. In 2024, more than 171,000 new business applications were filed in Illinois, the sixth-most in the country. Nearly five of every 1,000 residents filed “high-propensity” applications — those most likely to create jobs — which placed Illinois well above its Midwest peers.
The problem is, only a few of these applications become functioning businesses after a year. Only 5.6% of businesses survive the first year, one of the lowest rates in the Midwest and below the national average of 6.1%.
Illinois needs streamlined permitting processes and less onerous regulations so businesses can start more easily and stay longer.
For Vlad and Ellery Rikhlyuk, who launched a small-batch cotton candy business in Chicago, the hard part wasn’t dreaming big but navigating the labyrinth of rules and fees before they could even begin. Every step — registering the company, acquiring permits, setting up insurance — brought new costs and new paperwork. They were undeterred, but regulations are a significant barrier for entrepreneurs.
“If you want to do the legitimate thing, there are all these hoops you have to jump through,” Ellery said.
Vlad compared the experience to his father’s stories of the Soviet Union.
“If you want to do business in peace, you have to pay off all these government entities,” Vlad said. “It’s almost similar. You don’t have people trying to kick in your door, but you still have to pay ahead of time.”
Illinois’ regulatory code is the third-most burdensome in America. Illinois also levies the second-highest commercial property taxes in the nation, the third-highest corporate income tax and the seventh-highest sales tax.
On top of that, Illinois’ massive state and local pension debt drives up taxes year after year, discouraging new investment and making it harder for existing employers to expand. Warren Buffett has warned companies to avoid states drowning in pension liabilities; Illinois is a case study in why.
In 2023 alone, Illinois lost 218 businesses to other states, part of an acceleration now triple the rate of what net losses were before the pandemic. When adjusted for population, Illinois ranks second-worst in the nation for business outflow.
Every closure or relocation drains the local tax base that funds schools, infrastructure and services, leaving remaining families and employers to pay more.
Meanwhile, other states are seizing the opportunity to welcome job creators and grow their economies. Florida attracted more than 500 businesses from other states in 2023. Texas and Tennessee — both ranked among the top 10 for tax competitiveness — are also magnets for companies seeking stability and growth. Illinois, ranked near the bottom, is repelling them.
The cycle is not unbreakable. Illinois can turn things around. Simplifying the regulatory code would lower barriers for entrepreneurs such as the Rikhlyuks, who want to contribute to their communities but face needless roadblocks. And resisting the urge to raise taxes further would send a message that Illinois is serious about bringing in new business. To signal it is fully open for business, Illinois also should enact pension reform through a constitutional amendment to bring down the debt that drives up taxes.
Illinois has everything it needs to be a hub of innovation and opportunity. It’s time lawmakers stop punishing the people who want to invest here.
• Matt Paprocki is the president and CEO of the Illinois Policy Institute.