Reeder: Illinois a tough environment for entrepreneurs
By Scott Reeder firstname.lastname@example.org December 18, 2013 10:42PM
Updated: January 20, 2014 8:21AM
Starting a small business is tough. Starting one in Illinois is even more difficult.
Over the years, Illinois lawmakers have created a system that could make even the most intrepid entrepreneur shudder.
The Land of Lincoln is a tough place to do business to be sure.
For example, Office Depot has been capturing headlines recently regarding where it would locate its corporate office. The company recently merged with OfficeMax, and its executives were pondering whether to use OfficeMax’s Naperville headquarters or Office Depot’s in Boca Raton, Fla.
The Sunshine State won out.
It’s not hard to figure out why. Consider the following:
Illinois has a corporate tax rate of 9.5 percent (7 percent income, 2.5 percent personal property replacement tax). Florida has a 5.5 percent corporate tax rate.
Illinois has a personal income tax rate of 5 percent while Florida has no state income tax.
For every $100 worth of payroll, Illinois employers pay an average of $2.81 for workers’ compensation insurance compared with $1.84 in Florida.
Illinois’ minimum wage is $8.25 per hour, Florida’s $7.79.
A company as big as Office Depot has the political clout to go to the Illinois General Assembly and push for special tax breaks. In fact, the Senate endorsed such a proposal for the merged company, though it never came up for a vote in the House.
For small entrepreneurs, the story is quite different.
They lack clout to cut sweetheart deals with politicians but must compete against large corporations that do get such deals. More significantly, Illinois small businesses are saddled with the state’s burdensome taxes and regulations.
You see, it’s not just Florida that Illinois has trouble competing against. It’s just about every state that has a leg up on Illinois.
A study conducted by the state of Oregon found that Illinois has the fourth-highest workers’ compensation rates in the nation.
Illinois also has the fourth-highest minimum wage in the nation.
Illinois’ corporate tax rates ranks, you guessed it, the fourth-highest in the U.S.
Given these numbers, it’s little wonder that Illinois has the 11th-lowest rate of entrepreneurship in the country, according to the Kauffman Entrepreneurial Index.
It’s important to realize that small businesses are the major job generators in the economy. They employ just more than half of the private-sector workforce and have created nearly two-thirds of America’s net new jobs over the past 15 years, according to the U.S. Small Business Administration.
Please keep in mind that every big company started out small.
Apple began as an idea of Steve Jobs, who started the business out of his home’s garage. The same could be said of Amazon, which not that long ago was just a fledgling startup in Seattle.
Small firms are the ones most hurt by Illinois’ backward approach to taxes and regulation.
There seems to be a mindset among Illinois legislators that the business community is a bottomless pit from which they can continue to extract money.
A 2013 joint study by Bradley University and the University of Tennessee found that 25 percent of small businesses fail in their first year, and 73 percent go under within a decade.
Those are pretty daunting odds.
Not surprisingly, entrepreneurs look for places to start a business where they’re most likely to succeed.
And increasingly they’re concluding that Illinois is not one of those places.
The secret to turning things around and becoming more accommodating and attractive to small businesses and entrepreneurs is pretty straightforward — lower taxes and having fewer regulations for all businesses and individuals, not just Big Business and people with political influence.
With that, more businesspeople will be willing to take a chance on Illinois.
Scott Reeder is a veteran statehouse reporter and the journalist-in-residence at the Illinois Policy Institute.