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Combined state and federal taxes would take more than 50% of the top-end income for 22,000 Illinois small businesses.

Proposals in the Illinois General Assembly could slam massive tax hikes onto small businesses, the state’s primary job creator historically and in the recovery from the COVID-19 downturn.

One measure would punish 22,020 Illinois small businesses with a huge increase in their marginal state income tax rate and create a top tax rate of nearly 50.3% for them, once all state and federal income taxes are factored in.

S-corporations and partnerships, which “pass-through” their business income to their owners, who pay taxes as individuals, would see their top marginal state income tax rate jump from 4.95% to 7.95%, a 61% hike.

That would happen because the legislation, House Joint Resolution Constitutional Amendment 21, adds a 3% income tax on income above $1 million. It is scheduled for a hearing April 23 at which it could pass out of committee and go to a potential full House vote.

Research has shown that an increase in the top marginal tax rate is associated with a decrease in entrepreneurs’ hiring activity and lower wages for their employees.

Illinois has one of the highest unemployment rates in the nation and among the slowest wage growth. These are exacerbated by some of the highest state and local tax burdens in the nation, including the second-highest property taxes and eighth-highest sales taxes.

In 2017 Illinois residents endured the largest permanent income tax hike in state history, when lawmakers increased the rate by 32%, from 3.75% to 4.95%.

Illinois already pushes out more businesses than virtually any other state. The “millionaire’s tax” could make the situation even worse. Illinoisans should reject this call for higher taxes on the state’s vital small business community.

Contact your state representative to stop the small business tax hike here.