Raising Illinois’s Taxes

The editors of the Wall Street Journal have stuck their noses into the referendum on November’s ballot in Illinois to repeal the state’s constitutional provision mandating that state income taxes be levied at a single rate:

Democrats have announced a slate of new rates that will be imposed automatically if the measure passes. The current flat rate of 4.95% would rise to 7.75% for households earning above $250,000, with a top rate of 7.99% on incomes above $1 million. Proponents are also touting a planned tax cut for those making less than $250,000. But with a new bottom rate only 0.2 percentage point below the current one, taxpayers in that range can expect savings barely enough for an order of deep-dish pizza.

Mr. Pritzker says the economic slowdown requires raising more state revenue. But as the Prairie State’s own Barack Obama put it in 2011, “You don’t raise taxes in a recession.” Illinois’s unemployment rate in August was 10.9%, more than two points above the national average. The new tax scheme would further slow the jobs recovery by lifting the corporate tax rate to 7.99%, and by increasing the pass-through taxes paid by more than 100,000 small-business owners, according to the Illinois Policy Institute.

The tax increases won’t stop there. The political virtue of a flat tax is that it requires raising taxes on anyone who earns income. With a progressive structure, politicians can claim they’re only raising taxes on “the rich.” The state soon becomes beholden to affluent taxpayers for 40% to 50% of state tax revenue, even as the affluent increasingly leave the state.

Although the provision would raise my taxes I would support it under one condition: the amendment to the state’s constitution must include a provision prohibiting the legislature from change either the marginal rates or thresholds for ten years after the provision once the initial rates and thresholds above have been established. The reasoning is simple. The revenue that will be raised by what has been proposed is inadequate to resolve Illinois’s financial problems. Consequently, it is obvious that both will be changed quickly. Illinois’s legislators must grasp the nettle and do it soon.

Even better would be a simultaneous repeal of the provision in the Illinois provision rendering public pension commitments sacrosanct. As long as their are no restrictions on expenses, removing restrictions on taxes alone will never be sufficient to rectify the state’s balance sheet.

Illinois is different from California and New York. It has not been blessed with a benign climate, thousands of miles of beautiful, sunny beaches, or scenic mountains. It does not have New York’s history or cultural amenities. It is not as vital to the financial sector as New York.

Throughout its history Illinois has thrived because it is a place to work: agricultural, heavy industry, light industry, and definitely retail. It has the highest real estate taxes in the country, Chicago has the highest sales tax of any major city, it has the lowest credit rating of any state, it is the most politically corrupt state in the Union (but for Louisiana it would have little competition), and, with this change to the state’s constitution it will in all likelihood soon have the highest personal income taxes of any state. I am beginning to wonder if Gov. Pritzker will not be satisfied until the last job has left Illinois.