Illinois Tax Competitiveness Plummets, Ranking Among Nation’s Worst
CHICAGO - illinois has experienced a significant decline in tax competitiveness, dropping from 8th to 35th nationally between 2020 and 2026, according to a recent analysis. The state now ranks as the third-least competitive tax environment in the Midwest, trailing far behind its neighboring states.
The deterioration in Illinois’ ranking is driven by its high corporate, sales, and especially property taxes, despite maintaining a flat income tax rate. While a flat income tax of 4.95% – costing $1,793 per person annually – places Illinois 18th nationally,its 9.5% corporate income tax rate is the third-highest in the country. Combined with a 6.25% state sales tax (potentially reaching 10.25% locally, such as in Chicago) and a nation-leading 1.83% effective property tax rate, the state is becoming increasingly unattractive for businesses and individuals.
Iowa, in contrast, saw the largest improvement in tax competitiveness among Midwestern states, climbing from 43rd to 17th nationally. Ohio experienced the second-largest drop, falling five spots to 39th. Nationwide, Tennessee achieved the most substantial increase, rising from 38th in 2020 to 8th for 2026, while Oregon saw the largest decrease, falling from 8th to 35th.
Illinois’ declining tax competitiveness is already contributing to an outflow of residents and businesses. Data shows a tripling of businesses leaving Illinois since the pandemic, alongside a loss of over 56,000 residents to more tax-friendly Midwestern states. Without broader tax reforms to reduce the overall burden, experts warn Illinois risks continued economic decline.
