Yesterday in Springfield, the Illinois House of Representatives voted to override a veto by Governor Bruce Rauner and to pass a budget that includes spending reductions and state income tax increases. This measure gives the State of Illinois its first formal budget in three years.
The good news
Passage of this budget provides some level of certainty for the companies and individuals that have been delaying decisions based on the state’s spending and taxation proposals. It also provides rating agencies with a better understanding of the state’s plan for meeting its financial obligations.
The tax news
Effective July 1, 2017, individual income taxes will rise from 3.75 percent to 4.95 percent. Corporate income tax rates will increase from 5.25 percent to 7 percent. These increases represent a 33 percent jump in personal and corporate income taxes for Illinois residents and companies.
What will happen to the commercial real estate market in this new environment?
It is important to note that despite the proposed tax increases, Illinois remains an affordable
location relative to peer cities on each coast. Income taxes in New York and California range from
6.65 percent to more than 10 percent, depending on income. These exceed the taxation rates in Illinois, even after the current adjustments.
Similarly, real estate costs in Illinois remain very affordable in comparison to peer locations. As
of Q2 2017, average gross office rents in the Chicago area were approximately $40 per square foot. In Midtown Manhattan, average office rents were $79 per square foot and in San Francisco, average office rents were $75 per square foot. In this context, Chicago remains a true value.
Will companies leave Illinois due to these higher taxes?
Not so fast: Talent depth outweighs tax concerns. The most common question we’re asked is whether or not the state’s financial troubles will deter companies from locating in and investing in Chicago. To date, the answer has been a resounding no. Despite its political challenges, the Chicago Metropolitan Area remains, and will remain, the talent magnet of the central United States. It attracts more than 30,000 new college graduates to its core every single year and has an existing labor force of more than 9 million people in its sixty-mile radius. In Chicago, the percent of workers with a college education has increased 74 percent over the past twenty years. No other city in the country, except New York City, can claim such a deep, educated and diverse employee base for companies seeking top talent.
Sources: Cook County Clerk, State of Illinois, Federal Reserve Bank of Chicago, JLL Research
Download the full report here. For more information, contact:
Tel +1 312 228 2020
Tel +1 312 228 3189