Illinois’ state tax competitiveness ranking dropped six spots – from 32nd to 38th in the past six years. That’s the worst in the Midwest.
Illinois currently ranks 38th in the nation for its state tax competitiveness, but just six years ago the state ranked six spots higher in a Tax Foundation survey.
The new report found Illinois saw the largest drop in tax competitiveness among Midwestern states and tied with Virgina and Kentucky for the sixth-largest drop nationwide. Most other Midwestern states remained the same or rose.
Iowa saw the largest increase in tax competitiveness among Midwestern states, rising from 43rd to 17th in the nation. Ohio saw the second-largest drop, falling five spots to 39th.
Nationwide, Tennessee saw its tax competitiveness ranking increase the most, rising from 38th in 2020 to eighth in the nation for 2026. Oregon experienced the largest decrease, dropping from eighth to 35th during those six years.
Illinois was far less competitive than any of its neighboring states and the third-least competitive in the Midwest.
Illinois was saved from a lower tax competitiveness ranking in large part thanks to the state’s flat income tax. That plus has been diminished by its third-highest corporate tax rate, 13th highest state sales tax rate and nation-leading property tax rate – all making the state less attractive for businesses and individuals.
Here’s a look at Illinois’ taxes today:
- Flat income tax rate: 4.95%, costing $1,793 per person to rank 18th in the nation.
- Corporate income tax rate: 9.5%, ranking third highest.
- State sales tax rate: 6.25%, but local rates can hit 10.25% such as in Chicago.
- Effective property tax rate: 1.83% of a home’s value per year, highest in the U.S.
Illinois’ slide in tax competitiveness underscores the impact of high property, business, and sales taxes on the state’s economic outlook. Without broader reforms to reduce the overall tax burden, Illinois will continue to lose businesses and residents to more welcoming Midwestern states.
