Caterpillar Inc., suggesting that it could shift jobs out of Illinois, is prodding its home state to cut government spending and roll back tax increases.
Doug Oberhelman, chief executive officer of the giant Peoria-based maker of construction and mining equipment, protested against the state’s tax and spending policies in a March 21 letter to Illinois Gov. Pat Quinn, a Democrat who took office in January 2009.
“I want to stay here,” the letter said. “But as the leader of this business, I have to do what’s right for Caterpillar when making decisions about where to invest. The direction that this state is headed in is not favorable to business, and I’d like to work with you to change that.”
In the letter, first reported Friday by the Lee Enterprises newspaper chain and provided to The Wall Street Journal Saturday, Oberhelman said other states have stepped up their efforts to lure Caterpillar investments since Illinois raised income tax rates in January.
A spokeswoman for Gov. Quinn said he “welcomes frank and open exchanges between the business community and government” and will discuss the matter with Oberhelman at a meeting soon.
In January, the state’s General Assembly passed a Quinn-supported bill imposing a four-year increase in income taxes designed to reap $6.8 billion in added revenue and help the state balance its budget. The legislation raised the flat rate for personal income taxes to 5 percent from 3 percent and for corporate taxes to 7 percent from 4.8 percent. In 2015, both taxes are set to decline but remain above the prior rate.
Mr. Oberhelman enclosed letters from governors or other officials in Texas, Nebraska, Virginia and South Dakota, all citing the recent Illinois tax increase and urging Caterpillar to invest in what they described as more business-friendly environments.
“If Illinois doesn’t want your business, Texas does,” wrote Rick Perry, the governor of that state.
The governor of Nebraska, Dave Heineman, wrote: “In Nebraska, we balance our budget by controlling spending, not by raising taxes.”
An official in the South Dakota governor’s office chimed in: “In South Dakota, you make a profit, and you keep your profit.”
The Illinois tax increase will cost Caterpillar’s 23,000 employees in the state about $40 million this year, said Jim Dugan, the company’s chief spokesman. Higher taxes make it harder for Caterpillar to attract and retain engineers, accountants and other employees, Dugan said. He added that Caterpillar’s corporate taxes in the state also will increase but provided no estimate on the added cost.
“The state unfortunately continues to put off the tough decisions” about potential reductions in government spending and pension costs, Dugan said. He said Caterpillar was offering to advise the governor on cost-cutting based on the company’s own experience chopping pay and laying off workers during the 2008-09 recession.
Caterpillar’s 23,000 employees in Illinois account for about 22 percent of its global work force. In recent years, the company has done much of its investing in other parts of the U.S., mainly in areas where unions are weak, as well as in Asia and Latin America.
Last August, Caterpillar announced plans to build a $120 million plant to make excavators in Victoria, Texas. Caterpillar also announced last year plans for a new plant in Winston-Salem, N.C., to produce axles for mining machinery; expansion of a Sanford, N.C., construction-equipment plant, and a new engineering-design center in Rapid City, S.D. But the company also is increasing its capacity for making mining trucks in Decatur and has been investing in various other plants near Peoria, Dugan said.