Over the last decade, Illinois' economy expanded less than half as quickly as the national economy, growing 62% slower than the U.S. average since 2015, according to a new report published Sept. 29, 2026, by the Illinois Policy Institute. The study attributes the state's economic struggles to a tax system that's too burdensome, inefficient, and poorly structured. To reverse outmigration and draw new employers, the institute outlines 10 specific reforms aimed at strengthening Illinois' tax competitiveness.
The report documents that Illinois shed nearly 943,000 residents and $87.8 billion in adjusted gross income on net to other states during the past 10 years. While per capita earnings in Illinois run roughly $12,000 higher than in Indiana, the gap in after-tax, cost-of-living-adjusted take-home pay shrinks to only about $4,000, and that difference continues to narrow. The report notes that lower tax burdens and living costs in competing states allow incomes to go further. In one example of inefficiency, more than 342,000 Illinois businesses filed corporate franchise tax paperwork in 2022, yet only around 40,500 actually owed the levy.
"Taxes touch virtually every aspect of our economic lives," said Jared Walczak, senior fellow at the Illinois Policy Institute and report author. According to Walczak, Illinois' tax code limits the state's economic potential through a combination of elevated tax burdens and flawed structure. The report finds that simple yet substantive adjustments to the tax code can transform Illinois into a magnet for businesses and families. Bryce Hill, senior director of fiscal and economic analysis, said residents are departing for low-tax states offering greater economic flexibility, and the proposed policies should serve as a roadmap for lawmakers seeking to reward rather than penalize investment, startups, and job creation.
The report's 10 recommended reforms include scrapping the throwback rule that drives up taxes for small manufacturers serving customers in other states, and permitting first-year expensing for machinery and equipment so businesses can deduct purchase costs immediately instead of over multiple years. Other proposals call for repealing the estate tax, which the report says drives high-income households to retire elsewhere and costs Illinois economic activity and late-life tax revenue, and eliminating the corporate franchise tax that forces the vast majority of businesses to calculate a liability they won't owe. The institute also urges modernizing the sales tax base by broadening it across service industries while cutting the state rate from 6.25% to 5.25%, permanently removing caps on net-operating-loss deductions to help startups avoid unusually high effective rates, and tightening property tax levy limits by closing loopholes that have weakened existing controls.
The report warns that Illinois' anemic economic growth, population hemorrhaging, and weak business formation rates are compounding the state's fiscal challenges. While the tax burden can't shift overnight, the institute argues these changes represent a practical blueprint for encouraging rather than discouraging economic activity. The bottom line: Illinois' tax code is driving away both people and prosperity, and targeted reforms could stop the bleeding.