Illinois' Fiscal Problems Won't Stay in Illinois

Wisconsin's budget takes a $51 million hit as The Land of Lincoln tries to extract more revenue from its residents, including those who work or live elsewhere.


Joe Sohm Visions of America/Newscom

A few weeks back, Chicago Tribune columnist John Kass offered a modest proposal for how to tackle Illinois' persistent (and worsening) budgetary problems.

"Let's finally admit that after decade upon decade of taxing and spending and borrowing, Illinois has finally run out of other people's money," Kass wrote. His tongue-in-cheek solution: "The best thing to do is to break Illinois into pieces right now. Just wipe us off the map. Cut us out of America's heartland and let neighboring states carve us up and take the best chunks for themselves."

In Kass' plan (which included an updated map of the Midwest, sans Illinois), the state would be consumed by it's neighbors, with parts of Illinois subsumed by Indiana, Kentucky, Missouri, Iowa, and Wisconsin.

Those states have done a better job of managing their budgets and creating economic environments favorable to job creation, Kass reasoned, so maybe they can fix what's wrong with Illinois. At the very least, dissolving the state would be better for most Illinoisans than the alternative: higher taxes to pay off decades of piled up debt—including $251 billion in unfunded pension debt—along with worsening credit ratings, more never-ending budget fights, and cuts to government services.

I don't know if Kass is right about the merits of breaking up Illinois, but he's certainly right that the state's fiscal problems can no longer be contained within its borders.

Wisconsin's Legislative Fiscal Bureau (the state's equivalent of the Congressional Budget Office) estimates that tax increases approved by the Illinois legislature as part of that state's new budget will reduce Wisconsin's revenue by an estimated $51 million next year.

That's because of a longstanding tax agreement with Illinois allowing people who work in one state but reside in the other to pay taxes only in the state where they live. Because more Wisconsinites work in Illinois than vice versa, Wisconsin makes a payment to Illinois every year to offset the difference. That payment is going to grow much larger in the wake of a 32 percent income tax increase, part of an Illinois budget signed last week after a two-year impasse by Gov. Bruce Rauner.

The Fiscal Bureau notes things would be worse without the tax agreement. Without it, Wisconsinites working across the border would have to pay taxes to Illinois directly.

Wisconsin, however, could still come out ahead. A 32 percent income tax increase is sure to drive more residents out of Illinois. The Land of Lincoln lost more than 37,000 residents in 2016, the third consecutive year that Illinois lost more people than any other state.

And that was before a massive tax hike.

No wonder Gov. Scott Walker is rolling out the red carpet for the exiles.

"With the concerns they're seeing in Illinois right now, that makes Wisconsin—whether it's Kenosha, Racine, Milwaukee, Walworth, Rock County—all those areas will benefit from that," Walker told a local TV station during a parade on the Fourth of July.

The breaking-up of Illinois won't happen geographically, as Kass sarcastically suggested. But it will happen. With the fiscal problems in Illinois spilling over to its neighbors, expect ever more people escaping from America's most mismanaged state.

Correction: This story has been updated to correct the Wisconsin Legislative Fiscal Bureau's estimate.