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Some Tax Reckoning Behind CAT’s Stay-in-Peoria Decision

CAT’s announcement underscores that elections have consequences.

Mon March 02, 2015 - National Edition
Giles Lambertson

Peoria is celebrating like it won a megabucks lottery and, in fact, it did. When Caterpillar announced it would keep and expand its headquarters in downtown Peoria, city fathers breathed normally again. CAT CEO Doug Oberhelman declared that Peoria is where Caterpillar will “be anchored as we continue to build, develop, and power the world.”

A global company like CAT can drop anchor anywhere. It would be welcomed and would function effectively from an overseas location or from another power city in the U.S. There is, after all, nothing special about north-central Illinois that makes it a natural home for a heavy equipment manufacturer.

The setting actually began to feel unnatural to Oberhelman and other CEOs in the state as tax rates steadily climbed at the same time the state’s financial structure grew shaky under new loads of debt. Such an economic climate does not assure businesses of future state-level fiscal stability, nor does it encourage long-term investment. HR departments must work harder to entice quality recruits when income tax rates are climbing compared to other states.

The election in 2014 of an Illinois governor with fiscal and tax reform ideas undoubtedly was a factor in CAT’s decision to deepen its roots in Peoria. The reform agenda surely also comforted executives at John Deere headquarters just 92 miles up Interstate 74 in Moline, as well as decision-makers in other global headquarters in the state, all of whom face the same task of competing in a world-wide economy.

CAT’s announcement underscores that elections have consequences. While Illinois isn’t yet a business nirvana, CAT executives are wagering that more sensible tax policies may be in the offing. Philosophical critics of corporate decision-making will, of course, characterize the self-interest behind CAT’s decision as selfish. Yet the fact remains, businesses that don’t factor in the cost of doing business produce ghost towns instead of thriving new downtowns.

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