The Illinois legislature has voted to increase the state’s personal income tax from 3% to 5%:
Gov. Pat Quinn said today he will sign a major income tax increase as soon as it hits his desk and rejected criticism that he had misled taxpayers by saying during his campaign that he would only sign a smaller increase.
With no votes to spare and no Republican support in either the House or Senate, the Democratic-controlled General Assembly sent the measure to the Democratic governor early this morning after hours of bombastic debate. The action came in the waning moments of the lame-duck session just before a new General Assembly is sworn in.
The measure would raise the personal income tax-rate by 67 percent and the business income tax rate by 46 percent.
Besides the increases in the personal income tax and the business income tax the bill calls for increased borrowing (to pay the owed payment into the public employees’ pension fund) and some wishful thinking on controlling spending:
In addition, the measure would attempt to limit spending in each of the next four budget years — $36.8 billion in the 2012 budget year, $37.5 billion in 2013, $38.3 billion in 2014 and $39 billion in 2015. The state’s auditor general would determine if lawmakers and the governor exceed those spending limits. If the limits are exceeded, the higher income tax rates would revert to current levels.
“This is not a game, not a trick. It’s a real spending cap,†Cullerton said. “We’re really trying to handcuff ourselves and the governor in our spending.â€
But Republicans contended the limits would still allow growth in spending at a rate of 2 percent a year over the next four years, rather than require specific cuts to programs in the state budget.
Worse yet the 2011 Illinois legislature does not have the power to constrain the actions of the 2012 Illinois legislature—the bill could be amended to remove the tax rate reversion if spending limits aren’t met by a simple majority in both houses.
Chicago’s Mayor Daley has responded with the obvious:
Mayor Richard Daley today predicted the increase in the corporate income tax rate passed by state lawmakers overnight will prompt a quiet exodus of jobs to neighboring states.
“Businesses don’t have press conferences like this and announce they’re moving 50 people out, 60 people out, 70 people,” Daley said.
The comments of the Democratic mayor, who is not seeking re-election in February, echoed those made by Republican lawmakers as the Legislature sent the tax increase to Gov. Pat Quinn overnight with just the votes of Democrats who control the House and Senate. Quinn, a fellow Democrat, is expected to sign it.
“We have a new governor-elect in Wisconsin, a lot of competition comes from Wisconsin. (Gov.) Mitch Daniels from Indiana, a lot of competition,” Daley said at a City Hall news conference to announce that downtown building owners have been asked to illuminate their properties with blue lights next week to signify peace in honor of Martin Luther King Jr.’s birthday.
Illinois has experienced substantial out-migration over the last ten years and the legislature’s failure to deal seriously with both sections of the balance sheet will do little to stem the exodus.
To James Joyner’s remarks on Illinois’s income tax hike this morning I made the following comment:
Sadly, I think the income tax hike was necessary. Even more sadly I don’t think it’s sufficient. Unless Illinois’s economy improves dramatically over the next year (unlikely), they’ll be in precisely the same fix next year as this year even with the tax hike. Like most states Illinois primarily depends on three factors for income: retail sales, property values, incomes. When all of those decline or are stagnant, it presents problems for the state’s revenues.
Illinois’s two largest expense items are healthcare and public employee pensions. Between them they comprise about half of the state’s budget and unless their growth can be limited the legislature will need to increase rates year after year.
In Illinois passing legislation only requires a simple majority in each house of the legislature and that the bill be signed by the governor. The Democratic Party has controlled both houses of the legislature and the governor’s mansion for a decade. Illinois’s problem isn’t a partisan deadlock as that term is generally understood.
It’s more like incumbents don’t want to fall on their swords. Like the increased state budget for healthcare and public employee pensions that won’t be any different next year.
Many years ago I served on a parish council. Like most parishes ours was strapped for cash. At one meeting an elderly (and very high-powered) tax accountant who also served on the council somberly paged through the parish’s books. After a long pause he said “You’ve got to sell more.”
This is, indeed, part of Illinois’s problem. As mentioned above Illinois, like most states, is dependent on retail sales, property values, and incomes for its revenues. Retail sales are lacklustre, property values have declined and likely to remain that way for some time, and incomes are a fragile twig on which to hang the state’s revenues. Personal incomes have been growing quite slowly in Illinois and much of that growth has been on the part of the highest income earners—those most able to leave the state or manage their incomes so as to avoid the tax.
Illinois’s per capita personal income has grown by about 30% in nominal dollars. Based on CPI that’s about a 5% real increase over ten years or, said another way, incomes aren’t growing much here. A sharp increase in taxes means that taxes will reduce the level of economic activity in the state below what it otherwise would have been by virtue of deadweight loss.
The state’s contribution to public pensions are not an extraordinary expense or a capital expense. It is an ordinary operating expense and borrowing to pay it is a sucker’s game.
The state’s two largest budget items, healthcare and public employees’ pensions, comprise nearly 50% of the budget and are expected to rise at between 8% and 10% for the foreseeable future. By my back-of-the-envelope calculation if half of the budget rises 10% it already exceeds the 2% cap they’ve established. Why do legislators believe that if they’re not willing or able to cut the state’s other programs (the portion of the state’s budget over which they do have control) to offset healthcare and pensions (the portion of the state’s budget over which they do not have control) today, what will give them the will or ability next year?
Illinois’s legislators aren’t kicking the can down the road. They’re pretending there is no can.
IMO the time has come for a constitutional convention in Illinois. Illinois’s legislators refuse to address the state’s fiscal problems seriously and Illinois really has no other alternative.
Recent posts on this subject
Illinois’s Mess
Illinois’s Mess II
Illinois: Putting the “Fun†in Dysfunctional
I fear that the situation in Illinois may be a non-exact foreshadowing of what will happen to the nation as a whole.
Unfortunately, our current system of government coupled with the conditions in our society (including the influence of technologies not dreamed of by the founders) prevent even the simplest of responsible actions, which would be “when you find yourself at the bottom of a hole, the first step is to STOP digging…”
Some misc. thoughts:
1. A five percent income tax rate is not terribly out-of-whack with the _top_ rates in neighboring states:
IN = 3.4%
IA = 6.48%
KY = 6%
MO = 6%
WI = 7.75%
2. I think the corporate tax increase is the unfortunate news.
3. Interesting that Illinois is redoubling efforts to collect sales tax on the internet retailers. I’m not sure this hole is as big as people tend to think it is, but it’s getting bigger. This will be tied up in court for years at least.
4. Companion bills have sliced Medicaid eligibility for the working poor. I don’t have a sense of how big this is, but rate of increase should be slowed somewhat. It becomes a question of how much of healthcare is really in the state’s discretion?
5. The pension is not in the state’s short-term discretion, unless you want to agree with Republican lawyers that the Illinois Constitution can be interpreted otherwise. This would be the reason to call a Convention.
6. Some programs are federally-mandated and underwritten. I wonder if it makes sense to cut these and let the feds take them over.
PD –
But as Dave has correctly pointed out, the current increase is but a fraction of what is required without spending reform. And that’s what is on people’s minds. If Quinn could so quickly renig on his campaign pledge, where is the limit? Its chilling.
I’m sure some people who may have read a post I made about 2 weeks ago view it as a false threat, but its not. This represents a $10K increase in income tax for me (with more to come, no doubt), which is about 50% of my property taxes. The Florida income tax is zero, so we are talking about a $25K difference vis-a-vis IL. Property taxes are less. Oh, and its warm, with year round golf; and my business is conducted by phone, email and airplane. I don’t have to be in IL.
And so many others are in similar situations. Florida is one of the few states that “gets it,” reducing property taxes in sympathy with property values. They ATTRACT residencies, not chase them away.
I love Chicago. I love the Bears, Sox and Hawks; the eateries and so forth. But I can do my business out of Ft Myers airport, and still dine in the finest NY etc eateries without forking over my money to Pat Quinn and his incompetants.
This will not end up well. Think Michigan.
PD:
Just for reference, I don’t oppose revenue increases per se to solve Illinois’s fiscal problems. I’m opposed to revenue increases that don’t solve Illinois’s fiscal problems.
Very interesting comments by PD Shaw, Drew, and Dave. Drew: I love the Ft. Myers airport. Live in Naples and do business over the wire. Get needed face time in the hotels of Chicago and New York. This is a new model lifestyle. You’ll save so much in taxes that you’ll be one of the guys flying out of Naples airport in their own jet.
Here’s an idea for Mitch Daniels. Go to the legislature and say, let’s lay in a plan right now to take the state income tax down by .1 every year until we go from 3.4 to 2.9%. At the same time, let’s do some kind of state business development promo to encourage developers to set up nice modern industrial parks just off of I80, I90, and I94 east of Gary around Michagan City. Launch a positive assault on Chicago’s business base. Figure out an angle to help Gary to benefit too. Attack. Illinois has no defense. They’re dumb as hammers and weak as a sack of kittens.
Just slightly OT, you might want to read Bond Girl’s pieces on muni debt. While NY and Ca debt is holding up well, not quite so good for Il, but better than I would have thought. Read both parts. Link is to first.
https://self-evident.org/?p=877
Steve
I’m tempted to move back to IL just to compensate for Drew. It would save me 25k a year over CA. I’d love to have access to Trotter, Tramonto, Achatz and the others.
But there’s the weather. . .
Drew, I get where you’re coming from. I helped a trucking company move some of it’s operations out-of-state after Blago raised the fees on trucks, not to be confused with taxes which he promised not to raise. The results were mixed at best; there is a wide latitude of uncertainty with such a move, but I believe many companies will test such a move rather than continue to invest. Many existing businesses will have wasted their resources doing so.
I’m far more concerned about the business taxes; people will come and go based upon factors nobody can control. You are clearly within the means of choosing the most tax-advantaged jurisdiction for your lifestyle, but really you haven’t so far. Some will come, some will go, and as long as the jobs are there, those who might prefer to live in a more attractive, higher-cost state will pause.
This should all make for an interesting experiment. My daughter recruits for a large IT firm. It is more difficult to find high level people to go work in those low tax states. They have to provide higher salaries to get people to work there. At Drew’s level of income, I am making an assumption here, that may not be as much of an issue.
If all the jobs continue to go to places like Texas, it will be interesting to see if we can sustain a model where people get educated in the coastal states, then move down south. I would think that at some point either those states need to invest in higher quality education, or we begin to lose our productivity gains. As an alternative, I guess we could hope to continue to cherry pick the best minds of the emerging economies.
Steve
Scarcely a month goes by when we don’t consider moving to a low tax state. We’re unusually free to do so. But, Jesus: Florida? Texas? Nevada?
Roaches and mosquitoes and sweat? Or a state where they teach creationism and execute retarded people? Or the ghost town that is Nevada?
No thanks.
I think of it as 50k a year we pay not to have to live in Florida or Texas. Totally worth it.
MR –
C’mon. Trotter’s is just SO over rated. The food is good, but not great. And I’ve been drinking fine wine for 25 years now. (You should see my cellar) This is the only place I have ever had a corky wine. And they spent 20 minutes (with noses in the air) telling me “this is how its supposed to taste.” It was a washed up Pontet Canet (and I love this stuff. I have cases) Probably sat on a dock and got over heated. I finally had to tell them I had travelled Bordeaux and had tens of thousands of dollars of Bordeaux in my cellar before they finally relented.
Arrogant pricks, preying on uninformed dolts.
Trotter is not overrated. He’s a god. It’s just that he’s a slightly dated god at this point, like a Ducasse or a Senderens. An Odin to Achatz’s young, vital Thor. But I give props to the greats who got us to where we are. And I’m confident that even an Ferran Adria (not Chicago, sadly,) would offer a forelock tug to the great Charlie.
MC is on it. This is inevitable. For those of you who do not know the geography, the flux of business to Indiana is an easy matter. Iowa will also benefit. Wisconsin still needs to get their heads out of their arses. Work rules.
This is reality people. I hope IL workers are ready to move to IN and IA. I suggest Munster, Chesterton and Valpo, for those going to NW Indiana.
Years from now honest historians will identify Mayor Daley, Gov Quinn and their minions as the demise of the great state of IL. Daley now basks in the glory of Millenium Park and flowers on Michigan Avenue. Meanwhile,in the real world, the city is broke, as is the state.
MR –
I don’t know the last time you visited Trotters……………but its so over.
13 years.
Jesus F–king Christ time passes quickly when you’re old.
Oh my God. That was like a kick to the gut. My wife was pregnant with my son. My 13 year-old son.
13 years?
I’m sitting in a hotel room in Manhattan with the aforementioned 13 year old who is declaiming in hideous detail on how he’s tracked the spam he’s getting back to its source and that entire giant, loud, obnoxious teenager came into existence since I was last at Trotter.
I have to admit, Drew, you’ve tried to nail me before. This was the first time you connected. I am on the canvas, bloody mouth, head spinning.
13 years. I would have sworn it was 4 or 5.
I’ve lived in Florida and Texas, am currently in Ohio, but still have Florida residency. We’ll be going back to Florida in about a year. Coming from the flyover mountain west, I never much cared for Florida – I’m not a hot weather or a beach guy, but boy are the kids so looking forward to living close to Disney!
Texas was actually a lot nicer than I expected. I lived in the San Antonio area and being an outdoor family we spent a lot of time in the Hill Country which was all very nice. Austin is great too. Not sure I’d want to live there full-time though, we’d still prefer the west.
Anyway, I think jobs are key. People will go where the jobs are even if the taxes are high.
All I have to say is if your posting your comments from your fucking cell phone on a plane in a sub tropical climate…go to hell. This is not FL or even CALIFORNIA …assholes. For someone to come from a shitty little mafia-run state such as IL and post your 50+yrs of age rants here is BS.
IL is in a state of complete denial and the solidly refined legislature, idiots in office, and our so-called brutes of force for the people are waning and lacking in voice. When a personal tax increase is encountered and your ‘inherited’ dollars are at stake you might as well jettison from the Midwest and not look back and bitch. There is no REAL turn around for your arguments in this flatland.
Take your ‘POS’ (not point of sales but piece of shit) business elsewhere if your about curtailing the smokescreen of scandalousness that has enshrouded this state since the birth of the 21st century and keep your money where it is at or in flexible liquid cash. There is no investment here in IL. The spectrum is WAY to broad to ever leverage a balance of true idealism for this state.
Central-South … keep swilling beer and selling meth. Maybe the state should raise its taxes for a make-for-hire swat of clansmen to go scourge the countryside for the loss it so hopes to gain with the peeling of impetuous income dollars of its loyal residents. Que a flock of religious-egos similar to the Spanish Inquisition…get results.
North Chicago-Tri-city…stop thinking your on the forefront of making a difference!!! no seriously…assholes in the metro area think that they know what is going on and strictly limit themselves to making irresponsible choices in the ballots to try and make a stand without fully comprehending the full functional income of the state through its age-old bi-gon hard working folk who have the ethics to keep waging war in a docile countryside. Why don’t the Lake Michigan rats go and blow a f’n duck to help float campaigns such as Pat Quinn and there abide backing a systematic liar such as Mayor Daley who would rather kick a non-existent ‘can’ with James Joyner and ex-IL-homo-fuq-face Blagovich…
OH WHAT YOU FORGOT ABOUT THAT!
This state will never come around for it’s worth. The sad part is that the know-it-all dirt-balls want to be in bed for their benefit to scramble the health care and public employee pensions for the blue collar labor that essentially runs the the economy of the state. This will never cease and their idiocracy and movement to raise taxes for the benefit of high-income residents will be one of bastion tales of pompous ages.
It is their advantage… as assholes and geriatrics don’t or can’t work, have nothing left to offer but to try and live off of the state. If you can retire, get the hell out!…that is what they will force you to do. If you own a small business or franchise…you might as well be in Canada. Put on your ear muffs and learn French … or Spanish for that matter.
Start thinking about the youth and not the BS-Baby boomers on their way out and cut a path for the resistance of new comers who are the millennial-breadth of our culture here in this lengthy state. Think about it…go have a child…go spend your money on something other than GOLF and look to the expansive future…rather than your ‘tight-wad’ fucking wallet and how you can better pull one off on the state you grew up in so you can drive a Cadillac when your eye ball is falling out of your fat head.
FUQ-IL or shut up! – a bipartisan 31yr person who could really care less but knows that your rants aren’t worth 2 beans in a bucket. BTW beans grow abundantly on the rich fields that thrive this states economical growth.
Tell your kids to move or better yet, start educating yourself…you will be the cyclical downfall of a short-term minded community of no-good sheep who buy into the mainstream dumb-assery who you feel comfortable to rely on for nothing more than a place to scratch your ass when your tired and ill.
GET REAL… or stay in your comfy gated-golf-course-cancer-ridden-ol folk home. It’s 2011 not 1911…rusty.