January 13, 2011

Poor Illinois: Per AP, Neighboring States Are ‘Gleefully Plotting’ to Take Business, Jobs in Wake of Tax Increases

It’s not too difficult to determine where the sympathy of the Associated Press’s Christopher Wills resides in the aftermath of the Democrat-controlled legislature’s passage in Illinois of steep, “temporary” four-year income and corporate tax increases.

Wills cited neighboring states as “gleefully plot(ting)” to take business away from Illinois, claimed that the Illinois move “resolve(d)” its budget crisis (that remains to be seen), and asserted that “economic experts scoffed” at the idea that significant out-of-state business migration might occur. Oh, and he found one business threatening to leave not Illinois, but Wisconsin, because the Badger State’s governor wouldn’t accept deficit-generating light-rail money from Uncle Sam.

Here are the relevant paragraphs from Wills’s report (“Neighboring states gleeful over Ill. tax increase”; bolds are mine):

While many states consider boosting their economies with tax cuts, Illinois officials are betting on the opposite tactic: dramatically raising taxes [1] to resolve a budget crisis that threatened to cripple state government.

Neighboring states gleefully plotted Wednesday to take advantage of what they consider a major economic blunder and lure business away from Illinois. [2]

But economic experts scoffed at images of highways packed with moving vans as businesses leave Illinois. [3] Income taxes are just one piece of the puzzle when businesses decide where to locate or expand, they said, and states should be cooperating instead trying to poach jobs from one another.

“The idea of competing on state tax rates is . . . hopelessly out of date,” said Ed Morrison, economic policy advisor at the Purdue Center for Regional Development. [3] “It demonstrates that political leadership is really out of step with what the global competitive realities are.”

By going where no other state dares to tread, Illinois could prove itself to be a policy pacesetter or the opposite – a place so dysfunctional that officials created a jaw-dropping budget crisis and then tried to fix it by knee-capping the economy.

the Democrat-controlled General Assembly voted to temporarily raise personal income taxes 66 percent, from 3 percent to 5 percent. Corporate rates will rise, too – from 4.8 percent to 7 percent [4] - when Democratic Gov. Pat Quinn signs the measure.

The increase is expected to produce $6.8 billion a year for the four years it’s in full effect. [4] That should be enough to balance Illinois’ annual budget [5] and begin chipping away at a backlog of roughly $8 billion in old bills.

… Chicago Mayor Richard Daley predicted jobs will start trickling out of Illinois with little fanfare.

Notes:

  • [1] — The relevant definition of “dramatic” is “highly effective; striking.” You’re kidding, right Chris?
  • [2] — As a verb, “plot” means “to plan secretly, esp. something hostile or evil.” So trying to get business for your state is now hostile, or even evil?
  • [3] — The “experts” who “scoffed” at the idea of competition between the states probably don’t have much to say about NCR’s move out of Ohio to Georgia that was announced in June of last year. Now that Illinois has negatively altered its tax structure, it will still compete, but now it will have to do so by increasing its dependence on special tax abatements and exemptions to lure new business and to keep existing businesses in the state (Rose, a co-blogger at my home site, noted the irony last year: “Democrats constantly stomp their feet about tax cuts/incentives not working and yet that is their first line of action” when a company threatens to leave). Crony capitalism will become even more prevalent in a state that already has far too much of it.
  • [4] — “Temporary”? We’ll see. Also, Wills’s language seems to imply that that the taxes will remain partially in effect (i.e., not “in full effect”) after the fourth year. Maybe someone from Illinois could take a break from packing their bags and let me know if my suspicion is correct. Update: As suspected, and even worse than suspected — “The tax hikes, which will be retroactive to January 1, are suppose to be temporary for four years then slowly reduced until 2025.” More detail is at the link.
  • [5] — “Should” balance the budget? Again, we’ll see. The list of states failing to raise receipts by as much as originally thought by raising taxes is long. Two recent ones: Oregon and Maryland.

Wills went on to compare the top income tax rate in other states, but that misses the point. What’s important are the overall comprehensive tax burdens on individuals and businesses compared to other states — and not just neighboring ones

As to businesses, Illinois had (emphasis “had”) the 23rd-best state tax business climate for fiscal year 2011, according to the Tax Foundation. That ranking will surely fall. In the same survey, Indiana was 10th, Wisconsin 40th, and Missouri 16th. Wisconsin new Republican governor Scott Walker appears determined to undo the damage done by the his Democratic Party predecessor. But in today’s economy, why wouldn’t an Illinois company also consider any one of the other states, as formerly Ohio-based NCR did with Georgia?

For individuals, this graphic at JSOnline (click on Illinois in the U.S. map to see description) says that Illinois “has high property tax offset by low income tax.” Uh, not any more.

But the AP’s Wills did find a business that was thinking about moving:

Train-maker Talgo Inc. is threatening to leave Milwaukee because Wisconsin rejected federal funds for high-speed rail. Talgo still considers Illinois a strong possibility for its new the company’s new home, despite the tax increase, said spokeswoman Nora Friend.

Congrats to Governor Walker for rejecting the high-speed rail funds, as did new GOP Governor John Kasich in Ohio. High-speed rail is such a deficit-generating loser that accepting the money would have cost far more long-term than rejecting it. A Kasich spokesman called Ohio’s project “a train that will cost taxpayers $17 million a year that will be slow and that very few people will ride.” Given the cost overrun history of such projects, the $17 million estimate was surely a low-ball number.

The AP’s Wills could at least have tried to be objective. Instead, his report describing neighboring state governors and governments as hostile and evil (he used the word “plotting,” not me) is an uncalled-for gratuitous dig at people who are only trying to make life better for their states’ citizens. There’s legitimate reason to question whether Illinois Governor Pat Quinn and his tax-happy band of Democrat legislators have similar wishes for their own state’s residents, or if their primary goal isn’t really to maintain business as usual in Springfield at any cost.

Cross-posted at NewsBusters.org.

Share

1 Comment

  1. This is whats really happening Vaught said…Illinois deficit which is roughly 13 billion is just the tip of the iceberg Vaught said. The already bleak future of the Office of the Lieutenant Governor in Illinois got a bit bleaker last week with Governor Pat Quinns new budget…. While urging Illinoisans to keep the faith and slipping in a proposal for raising taxes Pat Quinn took a few moments in his annual budget….

    Comment by Jamie L. Manning — January 17, 2011 @ 11:04 pm

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.