Facing Historic Tax Hike, Illinoisans Look To Get Away

MacIver News Service | July 7, 2017

By M.D. Kittle

Madison, Wis…] You’ll forgive Illinois taxpayers if they feel like they’re in a Southwest Airlines commercial these days.

You know the ads: Some poor schlub royally screws up and wants desperately to escape his mistake. In the Southwest commercial, we hear the voiceover guy ask said poor schlub, and anyone who knows the feeling, “Wanna Get Away?”

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In the case of Illinois, it’s the debt-ridden state’s lawmakers playing the part of schlub, although there’s not much sympathetic about these politicians who have just made their state’s citizens a lot poorer. And, undoubtedly, some of those numbers will wanna get away for good, joining tens of thousands of others in the last year to leave the Land of Bankruptcy.

On Thursday, some Illinois House Republicans joined Democrats in signing a deal with the tax-and-spend devil, overriding Gov. Bruce Rauner’s vetoes of a budget package that will permanently hike taxes by 32 percent, retroactive to July 1. Individual income tax rates climb from 3.75 percent to 4.95 percent, and corporate rates will soar from 5.25 percent to 7 percent – one of the highest corporate tax rates in the nation.

Yes, the deal means the state will have its first budget in more than two years, putting an end to the nation’s longest fiscal impasse since the Great Depression. Yes, the state will be able to pay many of the creditors it has long stiffed.

Illinois was sitting on a backlog of bills and $800 million in late-payment interest, according to the Associated Press. Illinois’ annual deficit sits at $6.2 billion, with $14.7 billion in past-due bills.

But Rauner said the Democrats’ budget plan, led by tax-and-spender-in-chief, House Speaker Michael Madigan, did nothing to deal with the structural fiscal problems the state faces, not the least of which is a runaway public pension debt estimated at $250 billion by credit rating agency Moody’s Investors Service.

The Republican governor, who rose to power on a wave of voter discontent following a similar bailout of Springfield with the state’s largest temporary tax increase, said the override vote was another step in “Illinois’ never-ending tragic trail of tax hikes.”

“(Madigan’s spending plan) is not balanced, does not cut enough spending or pay down enough debt, and does not help grow jobs or restore confidence in government,” Rauner said. “It proves how desperately we need real property tax and term limits.”

And at the end of it all, Moody’s stands on the verge of downgrading the state’s credit strength to “junk” status, which would make Illinois the first state to hold the dubious honor of holding speculative venture ratings. The credit ratings service agreed with Rauner that the bailout may help pay outstanding bills in the short-term, but it won’t solve the state’s deeper fiscal woes.

“Illinois’ fiscal skeleton is so rotten that even by fixing this short-term cash flow problem there’s a long-term debt crisis that’s been happening under years and years of over-promising on things like public sector pensions, underfunding those pensions, but all the while knowing that no amount of money could keep up with the growth of that debt,” Austin Berg, senior writer for the Illinois Policy Institute, told MacIver News Service on the Vicki McKenna Show, on NewsTalk 1310 WIBA in Madison.

Berg has spent the past couple of weeks tracking the final days of the budget battle.

He said Wisconsin has benefitted by Illinois’ fiscal disorder, as an exodus of Illinoisans seek a better life. It’s not that Wisconsin has a lower income tax rate than its neighbor to the north, Berg said. It doesn’t. The Badger state’s progressive rate ranges from 4 percent to 7.65 percent. Wisconsin’s lowest bracket was higher than Illinois’ 3.75 percent flat tax. That has changed.

“To be clear, this exodus of Illinoisans to Wisconsin by the thousands over the last couple of years, it’s not as if Wisconsin is a tax paradise. It’s not as if Wisconsin has extremely low taxes,” Berg said. “But the trajectory of the states couldn’t be anymore different.”

In Wisconsin, Republican Gov. Scott Walker and the GOP-controlled Legislature have presided over six years of balanced budgets, cuts to property, income, and corporate taxes by billions of dollars, and saved taxpayers another $5 billion and counting through reforms to public sector collective bargaining.

Walker outlined more tax cuts in his most recent budget proposal, and an Assembly majority plan to phase in a state flat tax is estimated to cut income taxes by a combined $2.7 billion over a dozen years.

The MacIver Institute has advocated a glide path to a 3 percent flat income tax.

Walker spokesman Tom Evenson in an email to MacIver News said Wisconsin is an attractive place for people and businesses to relocate to.

“Our state has low unemployment, low debt, lower taxes and a tremendous education system,” Evenson said when asked about Wisconsin’s economic position compared to Illinois’.

“Over the past six and half years, we’ve seen countless businesses choose to relocate their operations to Wisconsin from other states. As the governor said recently, ‘And why wouldn’t they?’ We’ve moved Wisconsin into a top ten state for business, our workforce is dedicated, and we are getting government out of the way of economic growth. Our common sense conservative reforms are working,” Evenson added.

Many of those businesses have opted to move their operations from Illinois – which will have the fourth highest corporate tax rate in the country – to the greener pastures of Wisconsin.

Illinois continued to bleed residents to out-migration. The Land of Lincoln for three straight years has lost more residents than any other state, according to U.S. Census data. In 2014, the state saw a net exodus of nearly 100,000 residents, and more than 114,000 between July 2015 and 2016. On net, Wisconsin took in more than 11,000 Illinoisans in 2015 according to the Illinois Policy Institute. Illinois lost almost 86,000 people on net to Wisconsin between 2006 and 2015.

The state’s tax drag is a big reason, Berg said. He doesn’t see a loud “political revolution” in the fallout. No pitchforks. It will be quiet. It won’t be televised.

“It’s people saying tearful goodbyes, calling a Realtor and getting a moving truck, because that’s what we’ve seen the last few years,” the reporter said. “You can expect to see a lot more Illinoisans in Madison.”

In short, they wanna get away.