Rising Tax Rate Can't End Illinois' Economic Drought

Yet leading candidates to replace Gov. Bruce Rauner think the only problem with the state's income tax rate is that it doesn't go high enough.

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Robert Cohen/TNS/Newscom

Illinois has made many contributions to America, but lately its biggest service is making other states feel better about themselves. With the biggest public pension obligations, the slowest personal income growth, and the biggest population loss of any state, it has consistently recorded achievements that are envied by none but educational to all.

The state is in the midst of a debilitating fiscal and economic crisis. Because necessity is the mother of invention, crises can be restorative, forcing creative solutions.
Against a starkly unsuccessful incumbent Republican governor running in an unhospitable national environment, Illinois Democrats have the chance to win and, with control of the General Assembly, to devise serious solutions to intractable problems. But the Democratic race for governor has been notable mainly for the bad ideas it has elicited.

Illinois has endured two income tax increases in the past seven years. In 2011, the flat rate on individual income jumped from 3 percent to 5 percent. In 2015, under the original terms, it fell to 3.75 percent—a "cut" that left the rate 25 percent above what it was in 2010. Then last year, over Gov. Bruce Rauner's veto, the legislature raised the rate to 4.95 percent.

None of these changes has ended the state's economic drought, and it's reasonable to assume they actually made it drier. But the leading candidates to replace Rauner think the only problem with the income tax rate is that it doesn't go high enough.

Billionaire philanthropist J.B. Pritzker, businessman Chris Kennedy (son of Robert F. Kennedy) and state Sen. Daniel Biss have all endorsed a graduated levy, which would require removing the state constitution's requirement that any income tax "shall be at a non-graduated rate." The change would allow tax increases to be targeted on high-income taxpayers as they can be at the federal level.

But well-paid people can't generally leave the country to find lower tax rates. They can leave one state for another, and they do.

Amending the state constitution would allow the top rate to go much higher. The maximum rate in California is 13.3 percent. Illinois already ranks ninth-highest in the country in total state and local tax burden.

Income tax rates are not the sole determinant of economic fortunes, but everything else being equal, the higher they go the likelier they are to impede growth. It's probably not a coincidence that of the five states with the highest rate of job growth since the Great Recession, two have no income tax.

Illinois is not likely to change that pattern. A 2016 poll by the Paul Simon Public Policy Institute at Southern Illinois University found that nearly half of residents would like to leave the state—and that "taxes are the single biggest reason people want to leave."

Illinoisans don't think the services they get justify the price they have to pay. With a graduated income tax, the number of people heading for the exits would probably rise.

That might be a good thing, because under a proposal advanced by Pritzker and Biss, it would get harder to find a place to live. They want to repeal the state ban on municipal rent control, on the obvious ground that, as one candidate for mayor of New York famously said, "the rent is too damn high."

What Illinoisans might note is the irony of that complaint's being made in the city that pioneered rent control and maintains it today. In fact, New York and San Francisco have the highest average rental rates in the country despite—or rather, because of—a long history of restricting them.

The only reliable long-term cure for high housing costs is increasing the supply of dwelling spaces. Rent control works to curtail the supply of rental housing by making it harder for landlords to profit, thus encouraging them to convert existing units into condominiums while discouraging new building.

In San Francisco, the median rent is triple the prevailing rate in Houston, which has no rent control. New York City rents are about double those in Chicago. The onerous cost of housing in rent-controlled cities is what is known in medicine as an iatrogenic condition: one caused by treatment.

Illinoisans were disappointed after electing a new governor four years ago in the hope he would restore fiscal health, functional government and economic progress. They may avoid disappointment this time only because they know better than to hope.

COPYRIGHT 2018 CREATORS.COM

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  1. Illinois has made many contributions to America.

    Citation needed.

    1. Educational example, as illustrated here.

    2. Exhibit B: I present to you the worlds largest rocking chair.

      1. Case in point:

        Not only the World’s Largest Rocking Chair, but the largest chair in all of America.

        I bet it’s the largest in Illinois too.

        1. My dad lives in Casey. PM me if you have any questions about the town and/or visiting there.

          1. Let me know when they add a blunt to their collection of world’s largest things.

      2. Game. Set. Match. Mollie wins.

    3. John Wayne Gacy jr.
      Nicholas Troy Sheley
      William “Lipstick Killer” Heirens
      Rod Blagojevich
      George Ryan
      Dan Walker
      Otto Kerner
      Barrack Obama

      You’re welcome.

      1. You left out Al Capone

    4. Well, there is/was the Sears catalog.

    5. Chicago politics. Taken from the city and foisted on us all by Obama.

  2. Ah, government thinking! Whenever something does not work, or causes unintended consequences, the only conceivable solution is to do more of that thing.

    I used to say that government types have “gone full retard” but then I stopped when I realized even people with severe intellectual deficits tend to have way more common sense than that.

  3. I’m wondering if Illinois or California will be the first state to build a wall–not to keep people out, but to keep them from escaping.

    1. Neither of them can afford it.
      They might manage a colander, but even that would take years.
      Getting out is going to be the easy part. Deciding to get out is the hard part. A lot of these sods are reaping what they sowed. So be it.

      1. Maybe they’ll just go with minefields.

        1. There’s no way the cops give up their toys.

      2. As people move out, they’ll find their homes going down in value, just like in Detroit. Those who move out sooner, and I recommend it, will suffer the least. And now is a good time with lots of jobs available.

        Let Chicago, then the state, go bankrupt. And give the overpaid government workers, lots of pink slips and big haircuts on their pensions: or better, let the state buy empty homes, appraise them at current values (now, not later) and give them to their former workers instead. The government workers will then have essentially stolen their citizens’ biggest assets.

    2. Their biggest threat is fascist infiltration. They need to build some kind of anti-fascist protection rampart.

  4. “Illinois Democrats have a chance to win…and devise serious solutions to intractable problems.”

    And a group of chimpanzees with typewriters have a chance to write the script to “Hamlet”, but they most likely will not, because that is not in their nature.

    The Dems are one trick ponies, and that trick is bleeding the private sector dry because spending less of the public fisc on their cronies and sympathizers is anathema to them.

    1. I need something a lot more specific to distinguish Dems from Repubs.
      The behavior and its motivation as described seems to apply equally to both.

      1. Chapman is the hoping Democrats will di something they are clearly incapable of and rhetorically uninterested in.

        The difference between the GOP and Democrats is that Democrats don’t even bother with lip service to fiscal responsibility.

        1. When was the last time a leadership Republican gave lip service to fiscal responsibility?
          Without visibly crossed fingers, that is.

          1. When was the last time a Democrat did not call a reduction in the scheduled growth rate of spending a “draconian cut”?

          2. Mitch Daniels comes to mind.

  5. Well, it’s not called Healthinois.

    1. Boooooooooo…………

  6. “Illinois Democrats have the chance to win and, with control of the General Assembly, to devise serious solutions to intractable problems.”

    Wow.

    1. I detect a strong tone of sarcasm from Chapman here

  7. Illinoisans don’t think the services they get justify the price they have to pay.

    I bet the probably very large number who don’t pay the tax think otherwise.

    1. Illinois has a flat tax rate and has few deductions. Nearly everyone pays.

      It’s not like the federal system where you don’t actually start paying any tax until (IIRC) the $50k mark.

      1. Ah… I just assumed the “poor” were voting themselves a wealth transfer.

  8. In fact, New York and San Francisco have the highest average rental rates in the country despite ? or rather, because of ? a long history of restricting them.

    I don’t like rent controls either but can we at least be more accurate here? The rents are sky-high for three reasons: high demand, restrictive zoning, and burdonsome construction regulations. This is the case regardless of whether the apartment is rent-controlled (about half are not).

    1. You left out racism, Christians discriminating against LGBTQI+, and rising sea levels.

  9. Two corrections:

    “It’s probably not a coincidence that of the five states with the highest rate of job growth since the Great Recession, two have no income tax.”

    Actually, pretty much a coincidence. Depending on how “highest rate” is determined, California can be on the list. By pure rate of growth, the top 5 can include Oregon (9.9% state income tax), Utah (5% tax), North Dakota–plus or minus oil price swings (3.5% tax), and even California (13.3% tax). And if state income tax is the key driver, then Alaska with a negative “tax” should always be near the top for job growth.

    “The only reliable long-term cure for high housing costs is increasing the supply of dwelling spaces. ”

    Um, give us an epidemic or two, or just a mood change for trendy living locations or styles, and the demand side of the equation cna shift faster than supply.

    1. Because low income tax isn’t the only factor doesn’t mean it isn’t a significant contributing factor–and if something like high tax rates is a significant contributing factor, then it sure as hell isn’t just a coincidence.

      For it just to be a coincidence, high income taxes would have to make no contribution. That’s what coincidence means.

      1. Ken, just for you (and since I have time to waste today) I made a cross plot of state income tax vs. job growth (2008 to 2015–best I could find). The result: there is a VERY slight negative correlation (i.e. higher tax predicts lower growth) but the slope of the line is only -0.25. More statistically significant, the correlation coefficient is very poor (R = 0.03). Qualitatively, the cross plot looks like a shotgun blast.

        More specifically about very low state income tax, i.e. zero: those states show job growth ranging from 6 tp 15%, which is about the range of most other states with tax. And again, California almost ties Texas for jobs. And for local examples, some similar neighboring states can have similar tax rates but different job growth, or different tax rates and the same job growth.

        So income tax probably has some effect, but it looks very minor. The fact that a couple of zero tax states had job growth rates among the best is not predicted by this relationship. That’s what coincidence means.

  10. I like how California can take more of your income than the church would have in the Middle Ages.

  11. “A 2016 poll by the Paul Simon Public Policy Institute at Southern Illinois University found that nearly half of residents would like to leave the state?and that “taxes are the single biggest reason people want to leave.””

    Oh boy. Once people leave and their taxable incomes leave with them, the ponzi scheme will be over.

    1. I live in the high tax state of Md. Will be moving in the next 2 years to a lower tax state. My concern is those leaving Ill., NY etc will end up voting just as they did and bring their support of high tax and spend with them.

      1. It’s what they do. The refugees from California have already begun the process in Oregon and Washington, and are trying to turn Seattle into San Francisco 2.

  12. It wouldn’t hurt for them to raise taxes to balance the budget. When people see the actual bill, perhaps then true reform would begin.

    I’ve always said that if I was President, my first budget would be to present a balanced budget, no tax increases, that takes a decent bite out of the national debt. When laughed out of the room and reviled in the press for the cuts that would entail, I would submit a second budget. No cuts, but with proposed tax increases that would bring it into balance and take the same bite out of the debt.

    Until people can begin to see how much the government actually costs – either by giving them what they are paying for or charging them for what they want to receive – they won’t get serious about reform.

    1. The problem with raising taxes to balance the budget is that it NEVER works. The spenders then feel free to spend even more. They have, in essence, become comfortable with a certain level of deficit. However, the previous two sentences only apply to the Federal Government. At the State level, they can’t do too much deficit spending because they don’t control the currency. Thus, as in Illinois, they continually must find ways to justify increasing taxes. More pain is on the way for Illinois.

      Moving from the flat to a graduated income tax will allow Illinois to continue it’s high dive into the empty pool. They’re so dedicated to their principles; it’s so admirable. I’m giving them a diving score of 9.5. If they want to get a 10.0 score, they might consider just going to flat 10% income tax, with no allowance for taxes paid at the federal level. I think there’s lots of room for more spending. Come on, Illinois, step up to plate and give California a run for it’s money! Let’s have a high speed rail from one end of the State to the other!

      LOL

  13. We can’t ever do anything about increased government spending. That would be sacrilege.

  14. that’s because for many many years COMMUNIST DEMORATS HAVE RUN THAT STATE INTO THE GROUND.
    and they are STILL DOING IT.
    as PROOF, JUST LOOK AT CHICAGO.

  15. “Then last year, over Gov. Bruce Rauner’s veto, the legislature raised the rate to 4.95 percent.” Maybe shit like this explains why the governor has been “starkly unsuccessful”. The Democrats are hell bent on destroying Illinois. Short of violence, I not sure what Rauner can do about it.

  16. They should do it! Jack it to 99%! The faster they crash and burn, and all the productive citizens leave, the better.

  17. My Boyfriend broke up our relationship on September 2016. I love him so much wanted us to get back together and with the help of dr_mack @yahoo. com, my boyfriend was mine again?.

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