4 reasons Illinois can’t weather another tax increase

Lawmakers need to look at the state’s major spending drivers instead of increasing taxes, which will continue to drive more people out of the state.

Much of Illinois’ economy is crushed under taxes and regulations. Residents continue to suffer as taxes go up, and more and more people are fleeing the state. Things are dire in Illinois, yet the Illinois Senate, now back in session, is bent on continuing to take more from taxpayers.

Though lawmakers want to hike taxes, they have failed to address any of the state’s major spending drivers – namely government pensions, government union collective bargaining and Medicaid. Lawmakers haven’t even discussed changing the constitution to allow for the type of pension changes Democrats voted for in 2013. Politicians have also failed to tackle countless other cost drivers, including too many units of local government, a prevailing wage law that mandates high construction costs and workers’ compensation costs driving up government payroll costs.

Illinois is at serious risk of becoming a financially failed state. An additional tax hike, while acting as a short-term salve, would drive more people out of Illinois, worsening the state’s already precarious economic and financial position.

Here are four reasons why Illinois cannot weather another tax hike:

1. Illinois’ battered economy is extraordinarily weak compared to other states.
   • Illinois finished 2016 with the worst jobs growth rate and largest manufacturing jobs losses in the region.
   • Moody’s notes that four Illinois metro areas are currently in recession, and four more are near recession. Tax hikes would exacerbate and worsen Illinois’ already weak economy.
   • Illinois’ downstate economy never recovered from the previous recession, with 42,700 fewer jobs than before the Great Recession.
   • realtytrac.com notes that nearly 20 percent of Illinois homes are deeply underwater on their mortgages, the second-worst in the U.S. The Chicago area is projected to have the worst housing market in the U.S.
   • The state population was growing before the last tax hike. This time it is shrinking.

2. Taxes are already going up all over the state.
   • The current income tax rate is still 25 percent higher than it was in 2010.
   • Chicago recently raised taxes by $1,000 per household with more on the way, and a Cook County sugar tax to top it off.
   • Twenty local governments increased sales taxes for 2017. Meanwhile, downstate governments are seeing sales tax revenue decline despite higher tax rates.
   • Countless local governments continue hiking property taxes.
   • The ongoing tax hikes and debt issuances will likely lead to a fiscal contagion as there will be too few taxpayers to service all the debt.

3. Out-migration has hit record levels – and more taxes will push more people out of the state.
   • Illinois is losing one Peoria worth of people (114,000) each year due to out-migration, the worst the state has ever experienced.
   • Illinois’ state population has shrunk three years in a row due to so much out-migration.
   • A Paul Simon Institute poll finds that the most common reason people want to leave Illinois is due to high taxes.
   • Millenials and prime working-age adults are leaving Illinois fastest. The exodus rate from Illinois is multiples of all surrounding states.
   • Illinois loses population, on net, to every other state in the region according to both Census and IRS data.

4. The 2011 tax hike did not fix Illinois’ financial problems, and was followed by economic weakness and significant and ongoing wealth-flight.
   • Illinois’ 2011 tax hike raised more than $30 billion in new revenues for pensions. Yet, the state’s unfunded liability grew by $47 billion.
   • Illinois’ average annual loss $2.2 billion per year for 16 years prior to the 2011 tax hike. The loss was $3.6 billion per year during the tax hike. Chicago is the only American city experiencing millionaire flight.
   • The average income of a taxpayer leaving Illinois is $77,000 compared to a $57,000 average income for taxpayers entering Illinois. This $20,000 in-out differential is the worst of any state.
   • Moody’s analysts have thus warned of an Illinois death spiral.

Another tax hike, especially one as significant as the Senate is considering, would be courting disaster. Illinoisans need to see another reason to stay, not another reason to leave.

Many parts of Illinois are already in a recession and one in five homeowners is deeply underwater on their mortgage. Local tax hikes are occurring all over the state. And tax hikes have not solved Illinois’ problems in the past, yet spending reforms remain untried.

Moody’s analysts have even pointed to the risk to Illinois’ long-term ability to balance its budgets because pension payments are ramping up while the population is shrinking. Spending reforms are critical to avoid a financial death spiral.

The Senate proposal would not fix the state’s primary spending drivers – pensions, mandatory collective bargaining and Medicaid – and thus would not bend down the cost curve of government. The Senate proposal contains $5-7 billion of tax increases with very little in terms of pro-growth measures to offset the anti-growth effects of increased taxation.

If another tax increase is passed, Illinois will almost certainly see its population continue to shrink while its financial problems will not be solved.