And flee to other states…
Ohioans have always joked about Indiana being full of Hoosiers. But, frankly, the joke is on us. While states like Ohio lost jobs because they had bad business climates, favored unions over actual employers, and made mistakes by providing corporate welfare to businesses that were likely to leave unless we changed our fundamental practices, states like Indiana grew. Rather than give a band-aid, which local tax abatement schemes pretty much are, Indiana made fundamental changes. Businesses tend to prefer that to temporary tax treatment.
My good friend from Peoria, IL, home to CAT, recently brought to my attention the fact that Indianapolis is advertising in Illinois newspapers, suggesting that people come live in Indiana. Great move.
In the recent elections, states like Ohio and Wisconsin were fortunate enough to have Governors who “get it.” Of course, as a Republican, I am biased. I’m not saying, either, that Ohio and Wisconsin’s Republican leadership in the past was stellar, because it wasn’t. But the current Governors of those respective states, in my humble opinion, are far better than Republican Governors past.
So, Illinois raises its personal income tax rate by 66% and its corporate tax rate by 45%. They think that this change will balance the budget and help them pay down debt. This isn’t likely to happen.
Why not ask Maryland what happened when they tried to close their budget shortfall by raising taxes. Per the Wall Street Journal:
Maryland couldn’t balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O’Malley, a dedicated class warrior, declared that these richest 0.3% of filers were “willing and able to pay their fair share.” The Baltimore Sun predicted the rich would “grin and bear it.”
One year later, nobody’s grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller’s office concedes is a “substantial decline.” On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.
What will happen in Illinois? Probably the same thing, no doubt.
The New York Times, like the Baltimore Sun, predicts (with my emphasis in bold):
The Illinois tax rate was low before and remains low for big states. The income tax will rise from a flat 3 percent to a flat 5 percent. That will cause pain at the lower and middle levels of the economic scale, but the state’s millionaires will probably stay put. (The top rate is 10.55 percent in California, 8.97 percent in New Jersey and New York, and 7.75 percent in Wisconsin.)
Riiiiiiiiiiight. As you’ll read, the authors are blissfully unaware of Maryland’s record, since they claim that Maryland is one of those states that reject a “soak the rich” tax policy. It’s deceiving. The Times says that “Almost every state is in deep fiscal trouble this year, but only a few others have admitted that cutting spending will not be enough.” And from their perspective, that makes sense, even though it is wrong. Once people mentally wall off what “absolutely cannot be cut,” the answer becomes clear to them: raise taxes. Not surprisingly, New Yorkers who work for the New York Times Editorial Board suffer from this mindset.
But, it really isn’t all that hard. Ask some of the folks at the Chicago GOP (who knew they had one?) Even though Republicans in Illinois barely qualify as Republicans, it makes it harder when many statewide Republicans act more like Democrats (see: LaHood, Ray). When you have 20+ Republicans voting against school choice at the state level, and some liberal Democrats support it, you know that the political polarity in Illinois is out of whack. Maybe, just maybe, it’s magnets, but how do they work?
The paper of record, I predict, will be proven wrong. Wisconsin may have high tax rates for high earners, but that’s really the only apples to apples comparison the Times cites, and that will likely change. Businesses in Illinois are quite unlikely to move to California, New Jersey, or New York. (Guess which one of those three has a Governor who knows how to reform things without scaring away business? )
Employees of Illinois business, if they’re willing to move at all, are much more likely to move to Wisconsin or Indiana. The cost of living in New Jersey, New York, and California, not to mention other burdens and barriers to entry for businesses, make them unlikely competitors for Illinois jobs. And those employees are more likely to have family in the midwest, rather than on the coasts.
To see the ad Indianapolis ran in its entirety, click the image below. I’d say that Illinois businesses should consider Cleveland, but while it’s a great place, if the region isn’t going to change, don’t consider it. I heard American Greetings was contemplating leaving Cleveland for Illinois, like BP did. These recent events, however, lead me to believe they might move to Indianapolis.
As for me, count me with the editorial board of the Chicago Tribune, whose conclusion to the question of whether or not Gov. Quinn’s plan will fix things is this: Don’t Count On It.