📰 Illinois’ Tax Ranking Hits New Low: Why Businesses and Residents Keep Leaving the Prairie State

By Staff Writer | November 9, 2025

Once a symbol of Midwestern strength, Illinois has slipped to 38th in national tax competitiveness—burdened by the nation’s highest property taxes, one-party control, and policies that drive away growth. Experts say real recovery starts with reform, balance, and leadership that invests in people—not dependency.

A State in Decline

Illinois has long been a state of contrasts—boasting world-class industries and infrastructure on one hand, and fiscal instability and heavy taxes on the other. But now, those imbalances are showing their full cost. According to the latest Tax Foundation report, Illinois’ tax competitiveness has fallen from 32nd to 38th nationally, cementing its reputation as one of the least business-friendly environments in the Midwest.

That may not sound dramatic, but in the realm of state tax policy, the drop is steep—and telling. It marks a deepening divide between Illinois and its peers, many of which are lowering tax burdens to attract the very businesses and residents that Illinois is steadily losing.

A Long Slide, Not a Sudden Fall

Illinois’ tax challenges aren’t new—but the recent decline in competitiveness has been both sharp and sustained. Over the past six years, the state has experienced one of the steepest declines in the nation, tying with Virginia and Kentucky for the sixth-worst drop overall.

While much of the Midwest has stabilized or improved, Illinois continues to trend in the opposite direction. It now ranks as the third-least competitive tax environment in the region, trailing behind neighbors that have pursued aggressive reform agendas.

The contrast is stark:

• Iowa, once near the bottom at 43rd, has climbed to 17th, propelled by sweeping tax simplifications and rate cuts that have drawn investment and residents.

• Tennessee, after eliminating its income tax on wages and restructuring its tax base, leapt from 38th in 2020 to 8th by 2026.

• Ohio, despite slipping slightly to 39th, still avoided Illinois’ downward spiral.

Illinois, by contrast, remains stuck—hampered by a tax system that discourages growth and a government that has failed to enact meaningful reform.

The Anatomy of the Decline

What’s behind Illinois’ worsening performance? The short answer: almost everything except its flat income tax.

That 4.95% individual rate—which ranks 18th nationally and averages about $1,793 per person annually—remains one of the state’s few advantages. But the rest of Illinois’ tax structure tells a different story:

• Corporate Income Tax: At 9.5%, it’s the third-highest in the country, discouraging new investment and expansion.

• Sales Tax: The 6.25% state rate, which can reach 10.25% in Chicago, ranks 13th-highest nationally and adds to the cost of living and doing business.

• Property Tax: The most punishing of all—an effective rate of 1.83%, the highest in the nation.

Together, these factors create a triple squeeze: families face rising costs, entrepreneurs struggle to scale, and corporations look elsewhere to grow.

As the Tax Foundation notes, “Illinois was spared from an even lower ranking largely thanks to its flat income tax. But the advantage is outweighed by the state’s towering corporate, sales, and property taxes—making it one of the least attractive tax environments in the U.S.”

The Economic Toll

The consequences of these policies are no longer theoretical.
Illinois has seen consistent population decline for nearly a decade, losing tens of thousands of residents each year to lower-tax states like Florida, Tennessee, and Texas. Businesses—especially mid-sized firms and manufacturers—are following.

High property taxes, in particular, have become a flashpoint for both homeowners and policymakers. According to recent data, Illinois households pay nearly double the national average in property taxes. For many, that’s the difference between staying and leaving.

Meanwhile, corporate departures—ranging from logistics firms to regional manufacturers—have chipped away at the state’s job base. And for those that remain, the cost of doing business has become a growing burden.

“Each year, it gets harder to justify staying,” one small business owner in Peoria told local reporters. “We’re competing with states that are cutting taxes and simplifying regulations. Here, it feels like running uphill in mud.”

How Others Turned It Around

Illinois’ struggles aren’t unique—but its lack of reform is.
States like Iowa and Tennessee have demonstrated that policy change can reverse decades of stagnation. Iowa’s multi-year tax overhaul compressed brackets, reduced rates, and simplified compliance—all moves that boosted competitiveness and revenue stability.

Tennessee, long criticized for heavy reliance on sales taxes, diversified its revenue base while maintaining one of the lowest overall tax burdens in the country. Those moves, coupled with pro-business reforms, catapulted it into the national top 10 for tax competitiveness.

Illinois, by contrast, has focused on short-term fixes—temporary credits, partial freezes, and incremental adjustments—while structural problems persist.

A Path Forward—or Further Decline

Experts say Illinois could regain competitiveness, but only through comprehensive reform that tackles more than just rates. That includes modernizing property assessment systems, reducing local tax complexity, and creating stability in long-term fiscal planning.

Without that, analysts warn, Illinois risks continuing its pattern of economic erosion—watching its tax base shrink even as burdens rise.

“Illinois’ decline in tax competitiveness underscores the cumulative impact of high property, corporate, and sales taxes,” the Tax Foundation report concludes. “Without meaningful reform to reduce these burdens, the state will continue to lose both businesses and residents to more welcoming environments.”

By the Numbers: Illinois’ Tax Challenge at a Glance

• National Tax Competitiveness Rank (2026): 38th

• Previous Rank (2020): 32nd

• Corporate Income Tax Rate: 9.5% (3rd-highest in the nation)

• State Sales Tax Rate: 6.25% (up to 10.25% in Chicago)

• Effective Property Tax Rate: 1.83% (highest in the U.S.)

• Flat Individual Income Tax: 4.95% (18th nationally)

• Population Change (past decade): Down more than 250,000 residents

• Neighbor Comparison: Iowa ranks 17th, Tennessee ranks 8th

These figures tell a consistent story—Illinois is falling behind while nearby states reform, attract, and grow.

The Bottom Line: Illinois Needs More Than Reform—it Needs Balance

Illinois still has the assets that once made it a Midwestern leader—strong infrastructure, a central location, and a skilled workforce. But those advantages are eroding under the weight of an outdated and uncompetitive tax structure.

To rebuild, Illinois needs more than policy tweaks. It needs balanced government and leadership with vision. For too long, one-party dominance has left the state without the debate and accountability that drive better outcomes. A supermajority that goes unchallenged risks perpetuating the very policies that have driven residents and businesses away.

Illinois also needs a governor committed to empowerment, not dependency—one who believes in investing in people’s potential rather than keeping them reliant on handouts. True recovery comes from giving residents the tools to thrive, not temporary relief that fades with the next budget cycle.

If Illinois wants to stop the bleeding, it must restore balance, reward innovation, and rekindle the spirit of enterprise that once defined it. The choice ahead isn’t just economic—it’s existential.

Sources:
Tax Foundation’s State Business Tax Climate Index (2026 Report)

About the Author

The author covers economic policy, taxation, and state governance across the Midwest. Their reporting focuses on how fiscal decisions shape communities, competitiveness, and the everyday lives of residents.