In an exclusive interview Friday with The Times, the Republican governor said he looks forward to welcoming to the Hoosier State any Illinois business or resident that wants to pay less in taxes.
"We already had an edge on Illinois in terms of the cost of doing business, and this is going to make it significantly wider," Daniels said.
Illinois lawmakers are poised to vote next week on a plan that will raise the state's personal income tax rate to 5.25 percent from 3 percent, hike the corporate income and personal property replacement tax rates to a combined 10.9 percent and add an extra tax of $1 per pack of cigarettes. The income tax hikes would be retroactive to Jan. 1 and be reduced after four years.
Hoosiers pay a 3.4 personal income tax rate, while Indiana's corporate income tax rate is 8.5 percent.
The Tax Foundation, a nonpartisan tax research group in Washington, noted if the proposed corporate tax hike becomes law, Illinois businesses will pay the highest combined national-local corporate tax rate in the industrialized world.
That is the wrong course for Illinois to take, Daniels said.
"Folks in Illinois will eventually have to decide: Is this working well enough for us or do we want something different?" he said. "Point one of our anti-recession strategy here is to avoid doing what they've now decided to do."
Daniels has enacted deep budget cuts and eliminated many government programs to keep Indiana's budget balanced without a tax hike during his six years in office.
The money raised by the Illinois tax increases will help the state pay some $8.5 billion in overdue bills and make a $3.7 billion payment owed to government worker pension funds. Schools also would receive additional funding while property taxpayers would get a small annual rebate.
Despite the tax increase, Daniels said he's pleased to see Illinois finally may start paying its bills.
"That's just borrowing by a different name. They've been borrowing from the poor businesses that are suckers enough to do business with the state," he said.
Daniels also said he's surprised that two states as geographically and historically similar as Indiana and Illinois could be in such dissimilar financial shape.
"It does show that you can make very different choices, and the contrast between the choice we've made and the one they have is stark," he said. "Obviously I think ours is wiser, but self-governance means people get what they vote for."