Small businesses brace for higher income tax rates

Filed under Economy, Governance & Legal, Management, News
Gail Zelitzky

Business owner Gail Zelitzky, who is president-elect of NAWBO Chicago, opposed the state income tax hike, saying it will curtail business expansion

The 67 percent income tax hike that Illinois lawmakers approved last night to address the state’s financial crisis will cause small businesses pain but probably won’t spur them to leave the state or do business differently, observers said.

By increasing the personal income tax rate to 5 percent from 3 percent and the corporate income tax rate to about 9 percent, the plan is expected to generate about $6.8 billion in new revenue a year, putting a large debt in the state’s $15 billion deficit over the next four years. After that period, the personal income tax rate will drop to 4 percent.

Split down party lines

Democratic lawmakers moved quickly to pass the measure before a new General Assembly was sworn in at noon today that could have changed the outcome, according to Crain’s Chicago Business. The proposal passed the House Tuesday night by a vote of 60-57, with no Republicans voting for it.  Gov. Pat Quinn, who supports the measure, is expected to sign it.

While legislators scaled back the increase in the corporate income tax rate to 7 percent from a proposed 8 percent hike, when the personal property replacement tax is factored in, the corporate tax rate rises to about 9 percent, experts said.

Business groups oppose plan

The plan was strongly opposed by business groups, including the Chicagoland Chamber of Commerce, which said the increase would discourage new businesses from coming to Illinois. “We want to bring new businesses to Illinois. When you have the highest tax rate in the country, it’s really hard to do that,” James Kane, head of the Chicagoland Chamber’s taxation committee, said in a recent interview on Fox News. Kane, who is also managing director at True Partners Consulting in Chicago, could not bereached for comment. When the personal property replacement tax is added to the corporate income tax, the corporate tax rises to about 9 percent.

At that rate, small businesses will be hesitant to add new workers, said Gail Zelitzky, president of Silver-Robins Consulting and president-elect of the Chicago chapter of the National Association of Women Business Owners. “How can you expand if expenses are going up?” she asked.

Business owner Angelika Coghlan, president of Catwalk Consulting, an IT firm in Schaumburg, opposed the plan but doubts it will drive away companies who see a business opportunity in Illinois. “It won’t prevent you from doing business here,” she said.

Small business needs `overlooked’

But Coghlan also would have liked to see the state earmark some funds for small business development. “It’s still difficult to get money to run our businesses,” she said. “There’s more that could be done at the state and federal level to provide more opportunity ” for small businesses to get loans, but those needs were “overlooked,” Coghlan said.

In addition, Coghlan would have like to see the tax hiked imposed on a sliding rate. “Other states have put programs in place that raised income tax but it was based on salary level, which makes more sense,” she said.

Still, rather than complain about the new pain the tax hike creates, Coghlan said, “We deal with it. We’ll adjust.”

Looking at the big picture

Taking a long-term view, some small business owners supported the plan. “Having a state that’s solvent is the big picture,” said Susanne Hack, president of Susanne Hack & Associates, a lobbying firm in Chicago, who was at the state Capitol last night when the measure passed.

“Speaking for myself, I realize it was absolutely necessary,” Hack said. “Of course I don’t want to pay more, but I realize we have to pay our bills and move on.”

What’s more, Hack said, failing to act would have been worse. “There’s going to be some pain by individuals and corporations, but it would have been an economic and social disaster if there wasn’t some sort of revenue stream,” Hack said.

But others suggest the pain will be more than some small businesses can bare. Given the current credit crunch and that fact that the state owes some small business suppliers money for services rendered,  a higher tax bill could be the demise of small companies, Zelitzky said. “Some small businesses are holding on by a thread,” she said. “Any additional monies out of their pocket without an increase in revenues will put them over the edge.”

 — Ann Meyer

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