A Legislative Blunder In Illinois That May Cost Each Worker $1,100/Year

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Over the past three years, an economic movement has swept across the American Midwest. From Indiana to Kansas, roughly 42 percent of the states that comprise America’s Heartland have cut their respective individual income tax rates, while 8 of the 12 total states (67 percent) have provided over $12 billion in tax relief since 2011. At the helm of this Midwest tax-reform phenomenon is Wisconsin Governor Scott Walker. During his time in office, Walker has turned the Badger State’s economic future around as he cut corporate-income, individual-income, and property-tax rates to the tune of over$2 billion, renegotiated pension plans, and saw the state deficit turn into a $912 million surplus. While most Midwestern governors and state legislatures are following Governor Walker’s economic and legislative model in order to grow their economies, attract businesses, and reduce the total tax burden on their residents, one state and its governor continues to believe that they can tax their way into prosperity.

Rather than following the trend of cutting taxes, Illinois Governor Pat Quinn and the state legislature have since 2011 passed and signed five pieces of legislation that enacted over $27 billion in tax increases. To put that into perspective, that’s 7.2 times the total net worth, according to Forbes, of Chicago’s NBA, NFL, NHL, and MLB franchises combined.

The pieces of legislation in question increased the state’s tax rates on corporate income, boosted the tax on tobacco products, and imposed a new 6.25 percent sales tax on online sales. However, the most damaging tax hike on the residents of Illinois was the 66 percent increase of the individual income tax rate that saw it raised from 3 percent to 5 percent. After the tax hike went into effect, the average Illinois taxpayer saw his or her average state tax liability increase by $1,100 more per year. Considering that the annual mean wage for all occupations in Illinois is $47,680, according to the Bureau of Labor Statistics, the loss of an additional $1,100 per year is no insignificant amount, especially since unemployment in Illinois continues to hover around and above 8 percent.

Quinn as lieutenant governor in 2006Quinn as lieutenant governor in 2006 (Photo credit: Wikipedia)

And all in the name of servicing Illinois’ (specifically Chicago’s) unfunded pension liability and funding education.

This is ironic given that a) 8th-grade math scores have only improved 0.91 percent from 1990 to 2013, b) teacher salaries are roughly $70,000 per year, and are set to increase in Chicago by 4 percent over 2014-15 on top of automatic step-and-lane pay hikes, and c) pension plans have yet to be restructured as Illinois faces a $100 billion pension liability – at least $20 billion in Chicago alone.

I’m here to tell Illinois that the 50-plus years of data categorically detailed in my book, An Inquiry into the Nature and Causes of the Wealth of States (co-authored with Dr. Art Laffer, Stephen Moore, and Rex Sinquefield), clearly states that the Land of Lincoln cannot and will not tax its way into prosperity.

With the state legislature set to adjourn for the 2014 session at the end of the month, Governor Quinn’s first priority should be to let his temporary tax hikes expire. This would put almost $700 dollars per year back into the hands of working Illinoisans, and demonstrate that Illinois is committed to making the state more business friendly with the 3rd-lowest corporate income tax rate in the region. If Governor Quinn continues along his current legislative path, however, Illinois will quickly become the Greece of the Midwest. With the 2014 gubernatorial election taking place this November, perhaps it’s time for new, fiscally responsible leadership in the Prairie State.