10 tax reforms could help Illinois avoid losing another congressional seat

Illinois is set to lose another congressional seat after the 2030 census, if trends continue, perpetuating a decline that has reduced its delegation from 27 members to 17 since 1910.

That means that in addition to lost residents and economic growth, the state also stands to lose influence in Washington. Over the past decade alone, the state has lost a net of nearly 943,000 residents and $87.8 billion in adjusted gross income to other states.

State lawmakers should be concerned about what is driving that and focus on changing it. A recent poll found that more than half of Illinois voters would leave the state if given the opportunity. Among those who would leave, nearly 69% identified taxes as one of the top two issues facing Illinois.

The state’s economic and out-migration challenges are connected to an inefficient and poorly designed tax code. With another legislative session approaching next year, lawmakers have the opportunity to pass 10 tax reforms that would make Illinois more competitive for businesses and ease burdens on residents. These reforms could enhance the state’s tax competitiveness, combat out-migration and attract jobs.

Illinois can start by eliminating the corporate franchise tax. The state has a self-reporting requirement, and in 2022 more than 342,000 businesses filed paperwork for it, but only 40,500 ultimately owed anything. That leaves hundreds of thousands of businesses completing a filing that produces no tax revenue. Eliminating the tax would save these companies time and administrative costs.

A simple fix Illinois can adopt would be to allow businesses to immediately deduct the full cost of machinery and equipment, rather than spread those deductions across multiple years. A manufacturer buying equipment has to pay for it regardless of when the tax code allows the deduction. Letting businesses recover those costs sooner would make expansion more affordable, particularly for smaller companies.

Similarly, lawmakers should permanently remove the cap on net-operating-loss deductions, allowing businesses to offset profits with losses from previous years. A business that struggled through several losing years should be able to account for those losses when it finally turns a profit.

These proposals would give employers more money to invest in equipment, expansion and employees. Illinois needs that investment, and lawmakers should make it easier for businesses already here to grow rather than give them more reasons to consider another state. That matters, given that Illinois’ economy has grown 60% more slowly than the national average since 2015.

Residents deserve the same attention. For homeowners facing high property tax bills, lawmakers should strengthen property tax levy limits to address a recurring cost of staying in Illinois. Additionally, eliminating the unpopular estate tax — one of the primary reasons residents retire out of state — would help keep late-life taxpayers and their wealth in the state.

A more sweeping change would be expanding the sales tax to cover an increasingly service-based economy while lowering the statewide rate to 5.25% from 6.25%. Those changes should go together: Updating the tax base to reflect how people spend today must come with a lower rate on taxable purchases. Expanding a stable revenue source can provide relief in areas such as property taxes.

Politicians cannot control the weather, but they have direct control over taxes, and residents have repeatedly told them the cost of living here is a problem. Illinois lawmakers should want to do everything in their power to stop people from leaving for better jobs, housing and opportunities.

We should not wait for another census to confirm that Illinoisans have had enough of high taxes. Letting another legislative session go by without taking steps to alleviate the tax burdens that drive people out of the state will make the problem even harder to solve.

The coming session is a chance to adopt reforms that make it less expensive to live and do business in Illinois.

Matt Paprocki is the president and CEO of the Illinois Policy Institute.