In Land of Lincoln (and Obama), High Job Loss
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The Fiscal Times
September 8, 2011

On the eve of President Obama’s highly anticipated jobs speech, his home turf of Illinois may be feeling the most jobs pain of any state. 

Non-farm payrolls in Illinois dropped 24,900 in July, according to data from the Bureau of Labor Statistics released at the end of last month. That’s the most of any state and a fourfold increase over the state’s losses in June. In addition, just this morning, Gov. Pat Quinn announced a plan to close 7 state corrections facilities and lay off all 1,900 workers there.  Business groups are attributing the harsh losses in the private sector to the January tax increase that Quinn steered through the legislature, which bumped up personal and corporateincome tax rates from 3 to 5  percent and 4.8 to 7 percent,  respectively.  Though neighboring states like Wisconsin, Michigan and Indiana technically have higher corporate tax rates, in Illinois a  personal property replacement tax – which  amounts to a 2.5  percent tax added on top of the base rate,  makes the state’s effective tax rate now the highest in the Midwest.  

“Taxes are absolutely contributing to businesses decisions to downsize,” said Nancy Warren, vice president of The Management Association, a non-profit business group that represents small-and-mid-sized businesses in the state. “Certainly many of our members have had to reduce their workforce, due in part to the tax increase combined with their anxiety over the state’s finances and business climate in general.” The states’ backlog of unpaid bills – which totaled more than $4 billion, according to a June report from the state comptroller – is not helping to reassure companies that they are safe to hire, Warren said. Illinois also ended fiscal 2010 with a $37.9 billion deficit, the largest of any state.  

Republican lawmakers in the state are also blaming the jobs misery on Quinn’s tax increase.“There is something to be said for a connection between loss of jobs and the state’s tax increase that was passed in January,” said Illinois state Senator John Milner in a statement last month. 

But threats of leaving the state from  name-brand Illinois-based companies like Sears, Caterpillar, and Jimmie Johns have so far not come to fruition — which has some experts questioning whether the taxes are driving layoffs.“Right now, I don’t think enough firms have been impacted by the tax increase to make a hasty exit,” said Fred Giertz, an economist and state budget expert at the University of Illinois at Urbana-Champaign. “In the long run, the tax hike may have more impact, as firms weigh whether to expand in the state or build new facilities elsewhere. But big companies aren’t packing up and leaving yet.”

Instead, it’s the smaller manufacturing and construction firms, like the kind Warren works with, that are laying off workers, the BLS data shows. The state’s trade, transportation and utilities companies lost 7,900 jobs in July — the most of any sector — followed by leisure and hospitality. According to the quarterly beige book that the Federal Reserve Bank of Chicago released yesterday, manufacturing production slowed and construction decreased steadily in the seventh Federal Reserve district, which includes much of Illinois. “We have a large manufacturing base here — and the downswing in that industry is adding to business worries,” said Nancy Warren.

“What’s going on here is that you’ve got contractions in the economy and more firm deaths than firm births in Illinois,” said Greg LeRoy, director of Good Jobs First, a group that advocates for corporate accountability. “Illinois has been hard hit by plant closings and continues to get hammered in manufacturing by import competition. Tax really isn’t a big player here.”