Senate's proposed tax increase likely to encourage more out-migration
As state income taxes go up, Illinois’ population continues to drop -- dramatically.
According to an article by Illinois Policy Institute Vice President of Policy Michael Lucci, 115,000 people, equivalent to the population of Peoria, have left for states that have lower income tax.
Lucci expects the current situation to worsen if state senators raise the tax rate, originally 32 percent, to the now-proposed rate of 40 percent. Additionally, senators are looking to make the tax retroactive.
“If the proposal is structured like the income tax hike legislation introduced earlier in January, the law will be retroactive to the beginning of 2017,” Lucci said in the article. “Anyone with plans to leave Illinois this spring would effectively pay a border tax of hundreds or thousands of dollars on the way out the door.”
However, that is not Lucci's only concern.
“The loss of more than $14 billion of annual adjusted gross income (AGI) is equivalent to permanently losing all the non-migrant AGI earning power of Kane County, the state’s fifth-largest county by AGI,” he said. “Put another way, the loss is like losing all the AGI of Kendall, Rock Island, LaSalle, Macon and Kankakee counties, permanently. The $14 billion of annual AGI Illinois lost due to out-migration while the 2011 tax hike was in effect is also equal to all the non-migrant AGI of Illinois’ 50 smallest counties combined. Of course, it will only get harder for the state to make budgets work if tax dollars keep flowing out the door.”
Lucci pointed out that this has greatly affected the population of the state; he quoted the most recent statistics that suggest 2015-16 showed the greatest loss of population ever to occur.
“Residents are clearly voting with their feet after seeing the results of decades of failure from their political leaders,” he said.
Additionally, he cited investors service analysts, who have predicted the state could be entering into what Lucci described as a financial death spiral.
“But instead of cutting spending, the state Senate has proposed raising taxes,” Lucci wrote. He quoted a 2017 economic forecast that stated “four Illinois metro areas are already in recession, with four more in danger of falling into recession.”
The report, by Moody’s Investors Service, stated Bloomington, Carbondale, Peoria and the Quad Cities were in recession, adding that Elgin, Danville, Decatur and Kankakee counties were in danger of losing what economic recovery they had gained.
“The Illinois Senate plan is the equivalent of a failing cable company that is raising service rates on a fleeing customer base right before the company goes bankrupt,” Lucci wrote. “Instead of providing better services at a lower cost to constituents, the Senate proposal would raise rates on its remaining ‘customer base,’ undoubtedly driving more of them out of the state, and ultimately deepening Illinois’ crisis.”
He cited the state’s primary financial issues as its “massive retirement debt” operating expenses for government workers, whose unions have “extraordinary power ... in the collective bargaining process.”
“If the General Assembly would put an amendment to the Illinois Constitution on the ballot for Illinois voters to consider, as should have happened years ago,” Lucci wrote. “And the state’s unsustainable spending on union contracts for government workers could be reined in if the General Assembly changed the laws to reduce the extraordinary power government-worker unions have in the collective bargaining process.”