Governing Illinois, where Surplus Record is located, is a thankless job. Perhaps that is why at the end of his term, J.B. Pritzker will have been the second billionaire in a row to attempt to do right by his state. And it won’t be easy.
Truth in Accounting, a non-profit, ran a calculation in 2018 suggesting that the average Chicago resident, on a per capita basis, is on the hook for nearly $130K in city and state debt. What got the state (and city) into this mess was, in large part, Springfield, the state capital, rubber stamping both budgets and pension schemes for decades without any way to pay for them short of issuing debt. In other words, the checkbook was open, but there was no money in the bank account — except an IOU tucked away in a safe deposit box.
The bad news for those governing Illinois is that residents not only can vote in elections — they can vote with their feet. And increasingly, they’re leaving in larger and larger numbers each year. The National Movers study (carried out by United Van Lines) ranked Illinois first on the 2017 list of “most moved” states with 61.7% of moves being “outbound”. In 2018, Illinois moved up one notch in the rankings to second from last place. But don’t see this as a positive trend — in the past 10 years, Illinois has not ranked outside the bottom five states.
Between July 2017 and July 2018, Illinois lost 48,510 residents according to the most recent state census. A trend in the Midwest? Not quite. The Chicago Tribune reported that “no other states in the Midwest had losses.”
US News and World Report notes that “Major corporations have closed operations in Illinois over the last five years, including General Mills in West Chicago, Mondelez International in Chicago and Butterball LLC in Montgomery. And many small and mid-sized businesses, often considered the backbone of the state, followed, moving to states that would listen to them and support their growth, executives say.”
A local $6.00 train ride south of Chicago can take residents to Indiana, a state which has welcomed Illinois businesses and residents with open arms (thanks to its corporate tax rate which will drop to 4.9% in 2021 and a personal tax rate of 3.23%). Contrast these with Illinois’ latest numbers, which under Governor Pritzker’s new budget proposal would increase the tax burden “for many small businesses by 60.6%,” according to Illinois Manufacturer’s Association, a non-profit.
The IMA noted that the “new graduated income tax proposal that will increase the corporate income tax [for C Corps] by 13.5 percent to 10.45% pushing the state to have the third highest corporate tax rate in the country … while many small businesses will pay a rate of 9.45 percent.” These small businesses, according to the IMA, represent 75% of all the companies incorporated in the state.
How will these numbers look in practice? The IMA gives the following example: “Manufacturer A (Subchapter S) that has $2 million in income will see the tax bill increase from $129,000 to $189,000. Manufacturer B (C Corporation) with $5 million in income will see the tax bill jump from $475,000 to $522,500.”
Given numbers like these, Governor Pritzker’s approach to reducing Illinois’ debt burden by raising taxes on businesses (and individuals) is only likely to further encourage residents and manufacturers to leave for neighboring states, exacerbating the challenge to right the state’s shoddy finances.
The late Prime Minister Margaret Thatcher once proclaimed that “the trouble with Socialism is that eventually you run out of other people’s money.” In the case of Illinois, that money will run out far before it actually runs out — on the soles of the shoes of all the residents and business owners which can vote with their own two feet.
Jason Busch and Lisa Reisman are Editors at Large of Surplus Record. They are small business owners from Chicago who recently purchased property in Indiana.