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As Illinois Suspends Corporate Tax Breaks, It's Time to Recognize How Special Treatment Undermines a Welcoming Economy for All

06/08/2015 02:20 pm ET | Updated Jun 08, 2016

In the wake of Illinois state lawmakers passing a budget with a nearly $4-billion deficit, Gov. Bruce Rauner on June 2 froze two flagship tax-credit programs administered by Illinois' Department of Commerce and Economic Opportunity.

Proponents of the Economic Development for a Growing Economy, or EDGE, and Illinois Film Tax Credit programs say they're necessary to make the state competitive -- acknowledging that lower tax burdens boost growth. The catch? Through selective tax breaks, the state gets to pick who succeeds.

Illinois' budget impasse provides an opportunity to examine the existence of these tax credits and what makes them so attractive for politicians desperate to muster some semblance of economic growth.

First, film tax credits.

Starting in 2004, Illinois began giving out millions of dollars' worth of tax breaks for TV and film production.

An influx of film and television activity has cropped up across the state: Superman found a temporary home in Aurora; the Dark Knight and the Joker squared off on LaSalle Street in front of the Chicago Board of Trade; and the cast of Empire, a show set in New York, has made a film studio on the west side of Chicago its home.

Illinois gave out $26.5 million in film tax credits between August 2013 and June 2014 alone, according to data obtained via Freedom of Information Act request from the Department of Commerce and Economic Opportunity. Politicians point to growth in spending from the film industry and tout government's ability to manipulate policy to trigger job creation. Every so often, someone in Illinois recognizes the spot of a memorable movie scene.

They also recognize a broken state when they see one.

Because jobs are scarce and the cost of living is high, people continue to flee the state. In 2014, 95,000 more people left Illinois for other states than moved to Illinois from other states -- an all-time record high. There are 244,000 fewer Illinoisans working today than when the Great Recession began.

While the rest of the state is suffering, the film industry is enjoying sales- and income-tax breaks. But the film industry isn't alone in receiving special treatment from the state. Since 2001, Illinois has given out more than $1 billion to the biggest businesses in the state through the EDGE tax-credit program, which is meant to spur economic growth.

It's not working. Over the course of the EDGE tax credit's life span, Illinois is down 123,000 payroll jobs.

Additional incentives are only necessary when something is unattractive. In the case of these two tax-credit programs, the state is seeking to address the high cost of buying goods (by providing sales-tax breaks) and the high cost of doing business (by providing income-tax breaks) in Illinois.

The Illinois Film Tax Credit allows for a 30-percent tax credit for qualified production spending. This concept is not a bad one, as it allows businesses to avoid paying taxes on business inputs (a practice that results in repeated taxation across the chain of production). The state, through the film tax credit, acknowledges that multiple layers of sales taxation hinders job creation but only applies an exemption from this financial strain to certain players in a certain industry.

Both the Illinois Film Tax Credit and EDGE tax credits also allow for tax breaks on income, which is a perk that small businesses and regular taxpayers do not enjoy. If the state realizes that industries won't set up shop in Illinois without a lowered cost of doing business, then why doesn't it address the underlying problem instead of handing out piecemeal tax breaks?

Solutions already exist that would make Illinois a more appealing place to do business.

For starters, lawmakers should fix Illinois' workers' compensation laws, which have led to the seventh-highest workers' compensation costs in the nation. That seventh-worst ranking is after half-hearted reforms in 2011.

Good tax policy shouldn't be restricted to select industries. If Illinois politicians want sustainable jobs growth, lower taxes should be applied across the board, not just to the politically connected.