Like a good neighbor: Illinois sees record loss of people to nearby states

Solving Illinois’ people problem requires addressing the high cost of government, which makes the state far less attractive for people looking to plant roots.

New IRS data show the Land of Lincoln is bleeding a record number of people to its neighboring states.

While it’s not pretty, it’s the truth. And Springfield refuses to take note.

In tax year 2015 (2015-2016), 21,800 more people “walked out” of Illinois to each of its neighboring states than walked in from those states. Measured by exemptions on tax returns, that was Illinois’ highest loss of people to neighboring states on record.

Wisconsin (with a net gain of 6,000 Illinoisans), Michigan (2,500), Indiana (8,200), Kentucky (1,100), Missouri (2,000) and Iowa (1,900) all won their “border wars” with Illinois.

But why?

We know from the Paul Simon Public Policy Institute at Southern Illinois University that the No. 1 reason Illinoisans cite for wanting to leave the state is taxes. And economic analysis can shed some light on what might be driving shorter moves across the state border. Research shows that while longer-distance moves are driven predominantly by employment, shorter-distance moves are driven more by housing.

That means Illinois property taxes, which are often so high they can act as a second mortgage, could really hurt the Land of Lincoln when families are comparing home prices in their community with a nearby location in another state.

Of course, those who leave take their incomes with them. The Land of Lincoln lost more than $720 million in adjusted gross income, or AGI, on net to neighboring states in 2015-2016, and lost $4.7 billion in AGI to the rest of the nation as a whole.

An eroding tax base means Illinoisans who remain get squeezed even more for the surging cost of government.

Cities, villages and school districts across the state are hiking property taxes to pay for legacy costs that just keep growing.

One canary in the coal mine might be the city of Danville. Just a few miles from the Indiana border, it’s saddled with more than $100 million in local pension debt. Local leaders’ hands are tied by state law when bargaining with government worker unions, so spending reform is difficult, meaning tax hikes are one of the only levers available to fix holes in the city’s budget.

The result? Danville property owners now pay a dedicated pension fee of up to $1,020 a year. It can be tough to attract needed investment with a deal like that, and easy to move a matter of minutes to avoid the cost. The same goes for plenty of other communities in Illinois.

Just look at the Quad Cities, where the population on the Iowa side of the metro area (Scott County) grew by more than 4 percent since 2010. Meanwhile, the Illinois side shrunk, with Rock Island and Henry counties seeing their populations drop by 1.9 percent and 2.3 percent, respectively.

But the crowd selling a progressive income tax hike as the cure-all for Illinois’ woes has found a new battle cry against any real reform: “Look, Minnesota!”

Indeed, Minnesota was a rare state in the region to see a small net gain in people from other states last year, according to the U.S. Census Bureau. So are people really choosing Minnesota because of a progressive income tax?

Lyman Stone, a U.S. Department of Agriculture economist and demographer, poses a more likely explanation:

“Commentators have attributed Minnesota’s [recession] recovery to its tax policies, revenue-sharing and education, and other factors,” Stone writes.

“Unfortunately, those theories are probably all wrong. Simply put, the real reason for Minnesota’s relatively low unemployment rate and faster recovery is oil.”

Neighboring North Dakota’s oil boom provided opportunities for thousands of predominantly young, less-educated Minnesotans. Now that the boom has receded, is it any wonder those workers would be returning home? Minnesota has only enjoyed an upward tick in residents from other states in the last two years, according to census data, just as the oil rush petered out next door.

Also worth considering: IRS data show that over the last five years, Indiana, Wisconsin, Missouri, Iowa and Michigan all gained more Illinoisans on net than Minnesota.

Dropping another tax hike on a shrinking Illinois population and sputtering state economy remains a dangerous game – especially when the money won’t really go to new or improved services. The entirety of the $5 billion tax increase state lawmakers passed in the summer, for example, will be eaten up by pension payments.

Solving Illinois’ people problem requires addressing the high cost of government, which makes the state far less attractive for people looking to plant roots.

Anyone who refuses to even pay lip service to that sad reality is telling fairy tales.