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  August 11th, 2015 | Written by

A Midwestern Showdown

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  • Indiana vs. Illinois: #tax structure, access to talent and transportation #infrastructure

Geographically, less than 200 miles separates them. But despite Indiana and Illinois’ close proximity, manufacturers come to the Midwestern states for varying reasons. Below, economic development experts compare the two states according to the following three criteria: tax structure, access to talent and transportation infrastructure.

Victor Smith, Indiana’s Secretary of Commerce, says his state offers one clear advantage over its neighbor: affordability. Indiana was recently named the least expensive state in which to do business, and the state’s reformed tax structure has also garnered praise. “Tax rates are on a downward trend here,” Smith says, with Indiana’s corporate tax rate sliding from 7 percent to 4.9 percent by 2022 and its personal tax rate declining to 3.2 percent in 2017. Compare this to Illinois’ corporate tax rate, he says, which is a “staggering” 7.75 percent.

Numbers don’t lie, David Hulseberg, CEO of Aurora, Illinois’ Seize the Future Development Foundation, concedes, but he says they often don’t tell the full story. “While it’s true that tax rates are slightly higher in Illinois, Indiana receives a much higher percentage of state funding from the federal government,” he says. For every dollar paid to the federal government, Illinoisans receive back $0.45, he reveals. Indianans, however, obtain a hefty $1.81. “This means that Illinois is the third-least-dependent state on federal funds,” he says, while Indiana ranks 29th.

Economic growth requires manpower, Hulseberg says—something Illinois certainly has. “We have almost twice the population of Indiana, with much higher levels of educational attainment,” he says. More than 31 percent of Illinoisans currently hold a bachelor’s degree or higher; in Indiana, that percentage is only 23 percent. Illinois is also home to three of the top 50 universities in the U.S., Hulseberg says, “which translates to a much larger, innovative, educated and diverse talent pool” than its Midwestern rival.

Smith isn’t convinced. Yes, Indiana is less populated than Illinois, he concedes, but what the state lacks in residents it compensates for in manufacturing talent. “Hoosiers are leaders in designing and building the products that power our world,” Smith says, “whether that’s a car, a jet engine or a medical device.” Since July 2009, Indiana has added 91,700 manufacturing jobs to its economy—a rate that trails only Michigan. Buoying Indiana-based manufacturers, Smith says, is their proximity to a supply chain that comprises 29.5 percent of the state’s GDP, the highest concentration in the nation.

Arguably the biggest boost to Indiana commerce is the presence of Louisville International Airport, which straddles the Indiana/Kentucky border and serves as the global headquarters for UPS. Manufacturers in Indiana also benefit from access to numerous Class I railroads, including CSX Transportation and Norfolk Southern Railway, as well as a port infrastructure that ranks among the nation’s best. Current estimates place Indiana as shipping more than 70 million tonnes of sea freight a year—a volume that significantly impacts the state’s economy, economic development experts say. “By nearly any measure and any ranking,” Smith says, “Indiana shines as a state that works for business.”

Operating in Illinois also benefits businesses, says Michael Mertes, business development coordinator at the Illinois-based Village of Arlington Heights’ Department of Planning and Community Development, thanks to the state’s geographic centrality and strong transportation infrastructure. Take the city of Arlington Heights, for example. Not only is it situated less than 15 minutes from Chicago O’Hare International Airport—the 16th busiest cargo airport in the world—Arlington Heights has direct access to two interstate highways, as well as major freight railroads, Mertes notes. “This infrastructure gives manufacturers the opportunity to transport and receive products via the most efficient method for their business,” he says.