Illinois state lawmakers are severing new federal business tax cuts. Their quest to keep more cash will cost the state in business competitiveness.
Federal leaders made business tax cuts intended to boost the economy, but Illinois state lawmakers are undoing those savings so they can keep $234 million – and potentially strain Illinois’ already sluggish economy.
Background
A new federal law, known as H.R. 1, changes how companies are taxed on profits they earn overseas. It replaces the old Global Intangible Low-Taxed Income system with a new one called Net Controlled Foreign Corporation Tested Income.
This change expands what counts as taxable foreign income, while cutting how much companies can deduct from 50% to 40%. To balance that out, the federal plan added foreign income credits and deductions, including accelerated depreciation, which lets businesses immediately deduct investments in machinery, equipment, vehicles, etc., instead of spreading deductions over time.
These updates were designed to avoid double taxation and boost investment in the U.S. While this change lowers overall tax burdens at the federal level, most states, including Illinois, do not allow foreign tax credits, reducing the offsetting effects. This means states with the global tax will effectively make it even harder for businesses to compete.
Illinois policy change
Illinois lawmakers made this problem even worse through Senate Bill 1911, which removes the other pro-growth portions of the federal policy, while keeping higher-tax portions.
It means Illinois will use the lower 40% deduction, effectively raising the tax rate on foreign income, and broaden what counts as taxable profit. Together, these moves increase how much the state can tax from offshore business revenue. This is set to make the state $90 million in expected revenue.
Add to that, lawmakers split from the new federal accelerated depreciation deductions, a move that will most hurt manufacturers who would benefit from those upfront cost savings. Blocking that deduction is expected to save the state an extra $144 million in revenue.
Illinois continues to punish businesses
The federal rework will already pose challenges for the 21 states that tax foreign revenue, but most will at least offer some type of relief because new federal deductions apply automatically. Illinois’ decision to break away from these deductions will make the state even less competitive as it continues to hammer businesses for short-term revenues.
The Illinois Manufacturers Association slammed this move. “This measure deprives Illinois manufacturers of important tax benefits that allow businesses to upgrade equipment, expand facilities and grow jobs,” association President Mark Denzler said.
Manufacturing makes up 12% of Illinois’ economy, the 15th-highest share of any state. The industry has been crucial to the Illinois economy in recent months, being the leading driver of the state’s growth in the second quarter of 2025.
More broadly, higher corporate income taxes remain one of the biggest obstacles to economic growth. Illinois has the third-highest corporate income tax in the nation, and in turn has had one of the slowest-growing economies during the past six years. It ranks 45th. Raising costs is another revenue grab at the expense of long-run stability and growth.
If Illinois wants true fiscal stability rooted in growth rather than ever-higher taxes, it needs reform. That means capping state budget growth, cutting administrative bloat, reducing harmful regulations and making it easier to conduct business here.
