**Courtesy of State Senator Jil Tracy
Illinois’ overall population has declined by more than 260,000 residents since 2020, according to Census figures. For many reasons – skyrocketing taxes, high prices, staggering increases in crime – far too many Illinoisans and businesses are leaving our state. It’s a shame.
A key factor in Illinoisans exiting our state is the punitive nature of the estate tax. It can wreak havoc on Illinois family businesses, as well as the state’s economy. We need to take action.
Illinois is one of just 12 states that still has an estate tax, while 38 other states do not. 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 tax rate is graduated and goes up to 16 percent.
In January 2023, I introduced legislation that would amend the Illinois Estate and Generation-Skipping Transfer Tax Act to eliminate the state estate 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.
Small business has always been the backbone of Illinois’ economy. Many of these small businesses are generational family businesses. Many are family farms, and many are family agricultural related businesses.
So, what does this tax mean for farms? The sad reality is that many of our small family farms are shutting down because the heirs can’t afford to keep what was a multigenerational business afloat while paying down massive tax bills. So, our small farms get swallowed up by larger operations, which isn’t good for our economy or our food supply.
For many other small businesses, they can either face the same fate of closing, or the current owners can make the tough to decision to relocate the business to another state without an inheritance tax. They can take this drastic step before the business moves to the next generation, allowing their heirs to keep the doors open.
The result is that Illinois loses not only the tax revenue and economic development from the business, but we lose the current and future generations of the family that operate it. For every business that leaves Illinois, a snowball effect is created for their employees and the other local businesses they support. We have watched this happen far too many times already in Illinois.
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.
There’s also something sentimental and rooted in the spirit of American entrepreneurship about fostering family business and allowing that business to remain in family hands. Generational family 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.
If we cannot repeal the estate tax entirely, there are ways to make it better.
In October 2023, I introduced legislation (Senate Bill 2630) to align Illinois’ estate exemption amount (which is currently $4 million) with the federal estate exemption amount (currently $13.6 million) at the time the bill goes into effect. Senate Bill 2630 provides that Illinois’ exemption amount would increase to the federal exemption amount, but never decrease, and allows for the annual inflationary increase required under federal law.
During the upcoming session of the Illinois General Assembly, I plan to introduce legislation to establish the portability of unused spousal state estate exemption amounts. This means that if a spouse doesn’t use their full estate exemption before he/she dies, the surviving spouse can effectively double their estate exemption amount when it comes to estate tax liability. It could help Illinoisans who might otherwise be forced to make the tough decisions to sell multigenerational farms or small businesses just to pay the state estate tax.
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 that help Illinoisans better compete, create jobs, and boost our economy. It’s time to think more seriously about gradually eliminating the state estate tax or at least aligning it with the federal estate tax exemption amount.
