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I thought you might be amused by this. On the left is Illinois’s state tax revenues for 2016 and their sources. On the right is Illinois’s state tax revenues for 2017 and their sources. You can click on either image for a larger image.
Between 2016 and 2017 Illinois personal income tax rate increased by 25%. Despite that increase or, some would say, because of it, between 2016 and 2017 Illinois’s tax revenues decreased by about 3%.
From these data our state’s politicians conclude that Illinois needs to increase personal income tax rates. I think a more reasonable conclusion would be that strategy is not working.
Illinois is not paying its bills. It’s already paying more to borrow than any other state. It already has the highest property tax of any state in the union.
If you’re wondering what prompted this post, consider this op-ed from the State Journal-Register:
A decade ago, pension payments consumed about 8 percent of the state’s revenue. By 2017, they were consuming 18 percent, according to a Moody’s analysis of state financial reports.
Illinois can’t even keep up with what Moody’s refers to as a “tread water†level of payments. “Tread water†payments cover only new obligations, plus accrued interest for the pension plans. They don’t begin to address Illinois’ $133.5 billion in unfunded liabilities.
[…]
The Civic Committee is taking a sober look at the state’s politics and finances. Their decision to stand down for now on a structural fix to the state’s pension problems is a reflection of prior failed efforts to work around a state constitutional ban on diminishing or impairing employee pension rights.
Writing a decade ago, the committee foretold an Illinois that now exists. “The State then will be faced with two difficult choices: massive cutting of state expenditures and grants, or raising taxes to such a high level that some businesses and residents will flee Illinois. Or both,†the Civic Committee warned.
Spending has not been cut. But the Committee was right about the rest: Taxes are higher, and people are fleeing Illinois.
Solutions are limited and they amount to political hara-kiri. Either the state’s constitution must be amended to allow the state to reduce public employee pensions, the number of state employees must be cut, pay rates for state employees must decline, or some combination. We quite patently can’t increase revenues by increasing marginal rates. We must cut expenses.
The graphs look identical, I think you uploaded the same one twice.
Thanks. It’s fixed now.
They are very nearly identical but they are different. The headline revenue amount has decreased from 2016 to 2017 and the share of revenue of sales tax, the most regressive tax the state imposes, has increased. That suggests to me that we aren’t going to increase revenue by increasing the income tax rate.
Nearly every revenue category declined. The simplest explanation of that is declining population. People are fleeing Illinois’s taxes.
Heh. In the corporate world, which I operate, I’d look at the expense and revenue realities and call my financiers and start a dialogue about an orderly workout. But I have to deal in reality.
I believe you are correct that expense control is simply politically off the table. Capital providers would have to be true fools. So it leaves only the corporate analog to a workout investor: a federal bailout. Calling all legal types – PD?? How does that work??
The other solution requires a time machine. Go back 20 years. Look at everything Blagojevich did. Do the opposite. Cut Medicaid rolls and reimbursements. Hold the line on the pay and benefits of public employees. Make the regular payments into the public employees’ pension funds.
IMO a key problem is that Illinois’s politicians can’t wrap their heads around Illinois’s realities. They can’t expect inflation, population increase, rising property values, or economic growth to allow them to make ever-increasing spending commitments any more. Every attempt to increase revenue is likely to reduce it. Even the threat of higher taxes is likely to reduce revenue. They’ve never seen it before.
I believe their time machine suffered a malfunction, or so they say, stopping in the Rauner years.
I’m actually an eternal optimist. But I’ll be damned if I see a path here. You have the effing teachers union screeching about pay increases. Not a good start.
I’m not kidding about all these people I know who are looking to get out. This is the Naperville, Downers Grove, Hinsdale crowd. Everyone makes over $200k. Everyone. And they call us and want to know what Asheville, Naples or Sarasota are all about. Those who don’t call are going to Scottsdale. This is real. And IL pols are just drunken sailors careening all over the road until they go in the ditch. Somehow they just don’t understand why people object to $25-30k in property taxes……….and more taxes on the way.
Crazy.
The fact that increased tax rates produced less revenue indicates that an economic limit has been reached. The Illinois economy simply cannot produce more revenue. This may be the most alarming fact in the whole Illinois story. The politicians have actually reached the end of the line for their policies, and a major crisis is about to hit, soon.