Tracy: Eliminate estate tax to keep Illinois competitive with other states

Illinois is one of just 12 states that still has a state estate tax. Thirty-eight other states do not have a state estate tax. To keep Illinois competitive, we need to eliminate this tax.

The estate tax is imposed on a decedent’s estate before distribution to heirs. The amount of the tax is calculated after allowable deductions. The Illinois estate tax rate is graduated and goes up to 16 percent.

An unfriendly business climate is the reason so many large companies are leaving Illinois or significantly reducing their corporate presence here. 

Generational businesses small and large, especially our farmers, are the bedrock of our economy. Years of hard work and dedication should not be penalized when a family member dies, and the business is passed to other family members. 

In January 2023, I introduced legislation that would amend the Illinois Estate and Generation-Skipping Transfer Tax Act to eliminate the state tax for persons dying on or after the effective date of the new law or for transfers made on or after the effective date. My Senate Bill 140 was never released for a legislative committee hearing on the issue nor allowed a public vote by lawmakers in the Senate. It’s a shame.

Many of us were born and raised in Illinois, and we want to do all we can to keep it a place we are proud to call our home. We need a business advocacy mindset with initiatives like Senate Bill 140 to help Illinoisans better compete, create jobs, and boost our economy.

Quincy attorney Jim Rapp and I have talked at length about this issue. Estate and trust planning and administration are among Jim’s professional specialties, and he has seen what havoc the current estate tax can wreak on Illinoisans, as well as the state’s economy. Last year, Jim wrote a newspaper op-ed about the estate tax, and I would like to share his observations.

Jim notes that “No state – nada – adjoining Illinois has an estate tax and only Iowa and Kentucky have an inheritance tax. An estate tax is on what a person has; an inheritance tax is on what a beneficiary gets. Even then, the Iowa and Kentucky taxes don’t apply to spouses, children, grandchildren, and some others. Iowa entirely phases out even its inheritance tax in 2025.” 

The estate tax is one reason folks are leaving Illinois. And when people leave our state, there is a significant impact on state income tax revenues. An Internal Revenue Service report noted a net loss of some 105,000 people in one recent year alone, taking with them $10.9 billion in adjusted gross income. At a 4.95% income tax rate, that’s a loss of $539,550,000 in taxes to the state.

In addition to the income tax losses from people relocating out of Illinois, many other factors must be considered. The loss of volunteers dedicating time to benefit the needy. The reduction in donations to local social service, charitable, and other needs. The loss of sales, employment, and other taxes. The movement of business opportunities and jobs out of the state. The reduction of our Congressional delegation because of dwindling population.

Key factors to secure revenue and promote sound finances are population, jobs, and a robust economy. Eliminating or reforming the estate tax would be an important step forward in rebuilding our state.