I’ve mentioned before that my practice is to keep my nose out of the political issues in states other than my own and out of those in countries other than my own for that matter. Judging by the recent editorial in the New York Times opposing Illinois Gov. Rauner’s move to oppose non-union members being forced to pay “fair share” taxes, 7/8s of which go to political contributions to politicians who support public employees’ unions, the Time’s editors are not nearly as discreet:
Allowing nonmembers to get union benefits without paying fair-share fees would tempt dues-paying members to drop out. Union coffers — and bargaining power — would be weakened. Ultimately, all working people would suffer, because collectively bargained pay increases in unionized workplaces tend to lift wages in nonunionized ones, as companies compete for employees. Anti-unionism, which has become increasingly entrenched in recent decades, correlates with stagnating and declining wages. As unions have been harmed, not only by market forces but by policies that deliberately weaken them, income has flowed increasingly to those at the top of the economic ladder rather than to workers.
For now, Governor Rauner has instructed state agencies not to deduct fair-share fees from employees’ paychecks. The unions are expected to challenge the governor’s order in court. The attorney general of Illinois, Lisa Madigan, has not supported the governor’s stance. She will have the opportunity to intervene in any lawsuits to defend state law against the governor’s overreach. The end game, however, is more likely to play out in the Supreme Court.
Nowhere in the Times editorial is there any hint of Illinois’s problems or how the Times’s editors would go about solving them. That is intellectually bankrupt and morally reprehensible. Either butt out or stand up to the plate, NYT.
The New York Times has staked out a unique position for itself as local New York City newspaper, national newspaper, and guardian of left of center shibboleths everywhere. Its editors might become better informed before sticking their noses into other states’ business.
Illinois has one of the lowest levels of state contribution to education in the nation. It has the lowest credit rating of any state. It has one of the worst public pension problems in the nation. Its ROI on federal tax dollars is the second to lowest of any state—lower than New York or California. It has the highest rate of outmigration of any state. When Illinois raised its income tax, revenues did not increase proportionally to the increase but flight from the state increased, suggesting that tax increases were not a solution to Illinois’s problems.
Public employees’ unions present a thorny issue with a number of competing rights including the right of association, the right to representation, the public’s right to fair and honest services, and the right to honest government. Political contributions from public employees’ unions from dues and “fair share” taxes collected through the power of the government effectively recycle tax dollars into political contributions and are inherently corrupt.
Gov. Rauner has thrown himself on the grenade and it will be up to the courts to sort it out. Unless they’re willing to propose a workable solution to Illinois’s public pension problems, the fruit of decades of political mis-, mal-, and nonfeasance in Illinois, the editors of the New York Times should stick to New York.
Perhaps I should read some of the Illinois Policy Institute’s papers on this, but its hard for me to see this “fair share” issue as significantly tilting the scales. The basic problem is that politicians don’t negotiate with the unions in the long-term interest of the state, they negotiate for peace during their term with what appear to be slight increases in pay and benefits that have accumulated to much more than the private sector. Is the amount of union money at issue going to prevent Rauner from negotiating an optimal collective bargaining agreement?
I listened to a statehouse reporters roundtable last night where they are trying to figure out how much the fair share is per employee, and it sounds like it might vary. It might be much higher in local teacher’s unions, which are not subject to the Governor’s actions. Maybe they are the target. He is looking for legal precedent beyond just the executive agencies, and this is why the NY Times should be interested. The purpose appears mainly to make a SCOTUS case out of this.
One thing that’s interesting to me is that Illinois’ S&L tax burden are not too far out of line with the USA in general (IL 10.2%, US 9.8%) and by all I’ve seen it’s either middling or middle high in state-by-state rankings.
Which would suggest that more revenue ought to be possible. And yet for some reason you say it’s not and that the last time rates were raised revenues didn’t increase. I trust you’re right about that (seriously: not challenging you on that point). I just wonder what the structural issues are that make this the case.
@Trumwill, he wrote that the revenue didn’t rise “proportionately” to the rate of increase. The income tax rate went from 3% to 5%, but revenues didn’t increase by 2/3rds. There may be an explanation in that the tax increase was combined with increases in the personal exemptions. There may also have been some time-shifting strategies that would not persist. (E.g., we invested more in college savings accounts during this period than we would otherwise, and such contributions count against income for state income tax purposes)
The two main taxation issues as I see them are: (1) higher reliance on local property taxes for education create wide disparities in spending per school. It violates the Illinois Constitution, but the Courts find it unenforceable.
(2) Illinois Constitution requires flat income tax rates. The immediate effect is unlike neighboring states, a higher rate cannot be charged to the better-off. But the worse effect is that the effect of income tax exemptions makes the state income tax regressive. If you get a deduction for spending money on an elective like college savings, the deduction is benefiting someone with elective spending. Retirement income is entirely exempt.
I think Illinois would probably raise more revenue if it adopted the tax system of about any of its neighboring states (except perhaps KY).
Trumwill:
When Illinois raised its personal income tax two things happened. Revenues rose by considerably less than two-thirds. Illinois’s financial situation, if anything, deteriorated.
From that I believe that it’s reasonable to conjecture that Illinois can’t solve its fiscal problems by raising income tax rates. How high would Illinois have to raise its tax rates to capture enough revenue to solve its problems? We know it would need to more than double since nearly doubling it did not solve our problems. Triple? Quadruple? If that were the case who would live here?
Illinois isn’t a California or New York where many of its citizens can’t imagine living anywhere else. Its people live there for utilitarian reasons and today those who are most mobile are leaving. There’s also the complication that Chicago is within commuting distance of both Indiana and Wisconsin, the Quad Cities are adjacent to Iowa and Wisconsin, and East St. Louis adjoins Missouri. Rockford is an easy commute from Wisconsin; Kankakee from Indiana. Taxes are lower and regulation less burdensome in all of those states.
There are only two big towns in Illinois that aren’t an easy commute from another state: Springfield and Peoria. Springfield is the state capital so, consequently, has a lower unemployment rate than the rest of the state. To the best of my knowledge that’s true of all state capitals. That leaves Peoria. Peoria’s unemployment rate is higher than that of the state as a whole and rising.
Chicago’s sales tax is already the highest in the nation and its real estate taxes are among the highest in the nation. The city does not have the authority under state law to impose an income tax let alone a city earnings tax. Even if it did so everyone knows what would happen: the highest earners would move to Racine or Crown Point (if not to Florida, California, or Texas).
Tru will
IMO all the points Dave and PD make are valid. To the businessman’s perspective, the things one would look at in locating factories, distribution or corporate offices are all available within commuting distance of those border cities. Roads/rail, educated/skilled workers and educating institutions, quality of life. We often talk as if tax elasticities are very high. There are frictions. However IL because of the points I just cited has a particularly high elasticity. People just don’t have to put up with it.