Editorial: Illinois is stalled, and a miserable tax environment is a major cause.

A recent report from Moody’s Analytics on the economic state of Chicago and Illinois is sobering and should give pause to progressive politicians determined to find new ways to raise taxes, particularly on the business community.

Chicago and Illinois lag not only the country as a whole but, worryingly, even most of the Midwest. Chicago’s economy “is showing signs of fatigue,” according to the report last month, which was commissioned by the state’s Commission on Government Forecasting and Accountability.

Employment growth lags the country and the region. Since the last quarter of 2019, right before the pandemic struck, Illinois’ nonfarm jobs are up just 0.4% compared with 1.1% in the Midwest and 3.9% nationally.

There are a number of other statistics telling the same story.

The private sector job machine is slowing. The job growth that is being produced is coming from public or near-public sectors like government and health care. Business and professional services — high-paying jobs supporting households that are substantial tax contributors — are shrinking.

The economy in Illinois — and Chicago in particular — is nearly stalled. If this were the case everywhere else in the U.S., we could point to broader economic trends as the culprit. But while growth elsewhere in the U.S. has slowed as expected due to higher interest rates, it’s still chugging along at a noticeably faster clip than here in the nation’s third largest urban region. And the flagship of the Midwest.

Why?

Economists will point to different factors, but one that’s impossible to dispute is the heavy tax burden on business. Illinois ranks 45th of the 50 states in terms of the taxes businesses must shoulder, according to the report. Overall, the state’s average business costs are modestly worse than average — the state’s ranking there is 30th. That’s thanks mainly to lower energy costs than in much of the rest of the U.S. And even that advantage is eroding, the report states.

Imagine how competitive our business environment would be if Illinois and Chicago would stop choking our private sector with taxes.

You’d think in the face of such data that local politicians would be looking for ways to improve our competitive position. But they’re not. The significant policies Mayor Brandon Johnson and his progressive allies on the City Council have pursued in less than a year only have exacerbated the situation. And if they get their way, they’ll make it even worse.

The most imminent of these threats is the city’s proposal to quadruple the tax on sales of properties over $1.5 million — effectively a massive tax hike on commercial real estate and multifamily rental property. The Bring Chicago Home proposal is in limbo, thanks to a court ruling invalidating a voter referendum on the issue that was set for the March 19 ballot. But Johnson and his allies are intent on prevailing, so whether the votes are tallied in March or an altered version gets slated for November, chances are good voters will have their say.

This page has urged a ‘No’ vote, arguing that the economic hit will defeat the purposes of the tax hike, which is to alleviate homelessness in large part by developing more affordable housing. Such a move also is likely to depress business investment in Chicago. Real estate development and investment, like any other enterprise, is competitive. Investors have choices on where to build or buy. A 3% tax on their initial investment substantially depresses the returns they’ll make.

In addition, the Johnson administration has pushed through the most generous minimum paid-time-off law of any major U.S. city, effectively a substantial tax hike on midsize businesses, which are important job generators in our region. Likewise, City Hall won approval of a minimum-wage hike for workers earning tips against the ardent opposition of the restaurant industry.

Speaking of the restaurant industry, we noted with interest the closing after 75 years of Enzo’s, a popular restaurant in southwest suburban Chicago Ridge. The third-generation owner said costs were to blame, particularly property taxes, which are strangling the south suburbs. “We’re being overtaxed, and not enough people are sticking around to foot that bill,” Kyle Hallberg told ABC-7. “And if we don’t see changes here in the south suburbs soon, there’s gonna be more of that coming.”

Hallberg took the words practically right out of the mouths of the authors of the Moody’s report. “The state’s outlook is tarnished primarily by its past budget woes, weak population trends, and high tax burden relative to other states,” they wrote.

Some of Illinois’ economic doldrums are the inescapable legacy of its outrageous past failures to fund its public-employee pension systems. In Chicago alone, more than 80% of its property tax revenues go to pensions.

All the more reason to take whatever steps possible to ease the tax and cost burden on businesses rather than worsen it.

The bottom line is that a faster-growing economy will generate more tax revenue and give government officials greater leeway to respond to the ills (like homelessness) that we all want to address. The class-warfare rhetoric slung around all too easily these days — owners of commercial and multifamily property must “pay their fair share,” for example — ignores the simple economics. When your business tax burden is nearly the worst of any state in the country, you need to stop going to that same atrophying well.

Higher taxes lead to economic stagnation and eventually decline.

We include this expansive quote now from the Moody’s report because it tells the frustrating story not so much of doom and gloom but of squandered potential.

We respectfully suggest our politicians ponder its implications.

“Illinois has what it needs to remain a top business center, if it can solve the problems that are eroding its edge in the competition for talent, jobs and capital. Specifically, Illinois has a huge talent pool of highly skilled workers, world-class universities, more money for investment, and better transportation with an airport with direct connections around the globe. The state has these advantages because it has Chicago, the nation’s third-largest metro area. No neighboring state has a city even half as large.”

There’s no reason Chicago can’t be a thriving economic engine. Short-sighted politicians must start to look upon business owners as their partner rather than their foe.