Wisconsin Seeks to Gain From Illinois' Big Tax Hike

As the state of Illinois prepares to hike income taxes by 66% and corporate income taxes by 45%, the neighboring state of Wisconsin is seeing dollar signs. Critics of the tax hike, which awaits final approval by Illinois Gov. Pat Quinn, argue that Illinois will see an exodus of individuals, businesses, and most importantly, jobs to surrounding states with more favorable tax rates -- and that is exactly what Wisconsin's Gov. Scott Walker (pictured right) is hoping for.

Not shy about trying to reap some benefit from the ongoing fiscal struggles in Illinois, Wisconsin's new governor is trying to convince lawmakers to take advantage of the financial troubles of his neighbor to the south by reducing taxes on businesses. Walker has publicly laid out plans to lower the tax burdens on businesses in his state in order to encourage companies seeking refuge from Illinois' tax increase to migrate across state lines.With jokes, jeers and taunts coming from all sides, Quinn seemed cool and collected about the new higher rates as he wished other states luck with luring Illinois-based businesses. He emphasized that neighboring states, such as Wisconsin, currently have tax rates that exceed those of even the higher rates the governor anticipates signing into law and that myriad factors go into any decision to relocate.

Once the changes to the Illinois tax rates are in effect, personal income will be taxed at 5% and tax on corporate earnings will rise to 7%. The bill is slated to be in effect for the next four years, after which the rates will be pared back. Top personal income tax rates of nearby states such as Wisconsin, Iowa, Missouri and Kentucky currently fall between 6% and 9%. Without changes to their respective tax rates, Quinn may be correct that luring new residents or businesses will be a tough sell.

Beyond the fact that tax rates of other neighboring states may still be higher than the increased rates in Illinois, other states also have financial difficulties of their own. Financial experts and the state legislature's budget committee estimate a shortfall in the Wisconsin state budget of $2 billion to $3 billion this year. This is a far cry from the estimated $15 billion shortfall that Illinois may be facing, but still creates a difficult environment in which to reduce taxes.

Pointing to the Wisconsin Department of Revenue's estimated growth of 4.2% in tax collections in 2011, Walker suggested collections could increase even more if rates are reduced and new businesses enter the state. Following a reduction in tax collections in 2009 due to widespread economic woes, stymied growth in 2010 and more Republicans entering the state legislature in 2011, Wisconsin lawmakers may be able to get a tax deal of their own done with hope that it will increase revenue.
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