The incoming governor wants to investigate ways to offset the impact a possible minimum wage increase is expected to have on small businesses. A small business advocate says tax incentives may not do the trick because it’s already expensive to hire employees in Illinois and more mandates could be coming.
Gov.-elect J.B. Pritzker campaigned on increasing the minimum wage. He said that’s one reason he got elected.
At a stop this week in Springfield, Pritzker said the plan is to increase the minimum wage gradually over several years, going from $8.25 an hour to $15 an hour. He said that while the plan will cost small businesses more, he wants to make it easier to swallow.
“Not by lowering wages or having a different wage for small business, but by providing other benefits,” Pritzker said. “One of them certainly could be a tax credit for small businesses to offset the challenge of providing a higher wage.”
Pritzker said tax credits can be beneficial if they spur economic expansion.
National Federation of Independent Business Illinois State Director Mark Grant said small businesses would like to see something if that extra cost is handed down by lawmakers. He said the 2017 bill increasing the minimum wage over several years that outgoing Gov. Bruce Rauner vetoed had something similar to tax credits for small businesses.
“It’s a very convoluted thing,” Grant said. “I’m not sure that many small businesses could take advantage of it and if I remember it was temporary and only lasted about a year or two.”
Grant said a temporary tax break may not satisfy small businesses, especially if the Democrat-controlled legislature and Pritzker push forward an agenda with additional costly mandates for employers.
“There’s going to be more mandates on businesses, whether it’s mandated paid sick leave, whether it’s restrictive scheduling or predictive scheduling, there are all sorts of things out there we know are coming and, of course, in Illinois we all know that workers’ compensation has been a very difficult situation and the small guys end up paying the most for that, too.”
The nonpartisan Tax Foundation said the idea of special tax incentives for certain businesses has been floated a number of times at both the state and federal level.
“I’m not aware of any state that currently does it,” Tax Foundation Senior Policy Analyst Jared Walczak said. “There are a number of concerns.”
He said many minimum wage earners are employed by large businesses with narrow profit margins and if those businesses don’t receive the offsetting tax credit. it will add to pressure to consolidate positions, automate, or otherwise reduce staffing levels.
He also said such narrow credits may disincentivize business expansion past a certain point because compensation becomes too costly.
Other concerns Walczak raised included the subsidy being available even if it’s not needed and the credits subsidizing the cost of higher-paid hourly employees, which could change employment patterns.
Grant said lawmakers need to look at differences between what small businesses in rural parts of Illinois pay compared to pay rates in Cook County and the Chicago suburbs.
“That has to be taken into consideration as part of any calculation,” Grant said. “Our members who are the smallest out there really are going to be impacted.”
Some businesses may be able to raise prices, Grant said, but if they can’t they will look at making “significant changes in how they employ people.”
“You’ll see probably less hours being worked by some of their staff,” Grant said. “You’ll see them reducing other kinds of benefits potentially that they may be trying to provide some of their workers especially the entry level folks. It’ll be tough for entry-level people to find work if they're going to have to pay them $15 an hour.”
Grant said he looks forward to talking with lawmakers about the proposed minimum wage increase and how it will affect small businesses.