reportposted on 2021-07-27, 21:35 authored by David MerrimanDavid Merriman
Business taxes are often a point of debate in discussions about raising state revenue. Economists have not come to a consensus on an ideal business tax strategy. Illinois uses the business tax similarly to most other states. However, some states have considered eliminating or replacing the corporate income tax, or adding new business taxes. Long-term effects of these policy changes are difficult to predict. This paper will provide an overview of how economists think about the business tax, and options for changes in Illinois. What is a business tax and who pays it? Businesses may “remit” taxes—i.e. write a check to the government for the tax due—but ultimately some person or persons must bear the burden of the tax. This burden is most likely to be on the firm’s owner(s), its customers, its suppliers, or its employees. Often the burden will be shared among these groups. Thus, a tax on business is ultimately a tax on individuals. Scholars have not reached consensus on appropriate business taxation. Like other taxes, business taxes have implications for administrative efficiency, vertical equity (“fairness”), economic efficiency, and revenue stability.