It’s a bad idea and a bad way to fund education
A series of nonbinding referendums will appear on Illinois’ November ballot, addressing issues the General Assembly already rejected this past spring. Among them will be a special section devoted to class warfare.
This nonbinding referendum – the so-called “millionaires tax” – asks voters whether the state should impose an additional 3 percent tax on annual income beyond $1 million with the sales pitch of increasing education funding.
Not only is this a bad tax hike, but it’s also a bad way to fund education.
The millionaire income bracket is extremely volatile, as earnings beyond $1 million fluctuate widely year to year. If revenue from a millionaires tax actually went to fund education, schools would be forced to deal with constantly changing funding.
The best way to help schools is to fix Illinois’ convoluted education finance system and efficiently give schools and students the resources they so desperately need.
A new tax would simply throw good money after bad, putting reform off for another day without actually helping students.
Illinoisans have seen such tax hikes before, all sold in the name of a cause that is quickly forgotten once the revenue is collected. The 2011 income tax hike was sold as a way to pay down the state’s $8.5 billion in overdue bills. The tax has collected more than four times that amount, yet $4.5 billion in unpaid bills remain.
Once the money is in state coffers, Springfield politicians spend it how they choose.
A millionaires tax scheme was rejected by the General Assembly this past spring, even with Democratic supermajorities controlling both chambers. Tax-happy legislators can see that economic opportunity is leaving the state, and that today’s students are the ones who will suffer tomorrow’s bad economy.
Because of Illinois’ destructive tax and regulatory structure, the state is bleeding residents. According to the Internal Revenue Service, Illinois loses people to other states at a net rate of one person and $40,000 every 10 minutes. That’s after accounting for people and income that move into Illinois.
And Illinois isn’t just losing more people than it gains; it is losing higher-income earners. The average taxpayer who leaves Illinois makes $9,000 more than the average taxpayer who enters Illinois.
In effect, Illinois has been trading high-income, high-tax paying residents for lower-income earners and a smaller tax stream. This is a fool’s trade. A millionaires tax would make Illinois’ migration crisis worse.
Maryland instituted a millionaires tax in 2008, when 3,000 residents filed tax returns that showed income of over $1 million. The next year, only 2,000 million-dollar earners filed their taxes in Maryland.
Maryland’s state comptroller admitted that the substantial decline in million-dollar earners couldn’t all be attributed to the recession. Studies have also pointed to millionaires leaving New Jersey after the Garden State instituted a millionaires tax.
There is no group so well-equipped to leave Illinois as those who earn more than $1 million per year. When small-business owners and higher-income earners leave, they take jobs and investment dollars with them, hurting the state’s middle class.
One-quarter of the income that would be hit by the millionaires tax is small businesses income. Another quarter of the income that would be hit is involved in investments made in Illinois. In short, more than half of the dollars targeted are directly involved in Illinois job creation, something the state desperately needs.
Seven years after the Great Recession began, Illinois is still 170,000 jobs away from regaining pre-recession job levels, according to the Bureau of Labor Statistics. That’s the worst record in the entire country. And things aren’t getting better. In the first seven months of 2014, Illinois has lost nearly 6,000 private-sector jobs, also the worst in the country.
Much of Illinois’ poor recovery can be attributed to the historic 2011 income tax hike.
Illinois actually did better than most of the country in the first year of recovery from the Great Recession, ranking fifth in the Midwest and 14th nationally in job creation in 2010.
Then, in January 2011, Illinois politicians raised taxes on all families and small businesses by 67 percent, taking away a week’s worth of income. Corporate taxes went up by 46 percent, incentivizing corporations like Office Max to relocate.
Illinois’ job creation has decelerated by one-quarter since that tax hike, and the state’s employment growth rate has been cut in half. Illinois is now further away from recovery than any state in the country.
Out-migration has also accelerated since the tax hike, with Illinois now losing, on net, 70,000 people per year to other states.
Tax hikes have already failed. Why try again on a group so capable of leaving the state in the rearview mirror?
The real debate Illinois leaders should be having is whether the state should have an income tax at all. Nine states in the U.S. have no income tax, including large states such as Tennessee, Washington, Florida and Texas.
No-income-tax states perform significantly better in job creation and economic growth, providing more opportunities for their most vulnerable residents. Opportunities created in no-income-tax states also lure away Illinois workers. In fact, Illinois loses more workers to Texas and Florida than to any other states.
Washington state has experience with the millionaires tax issue. In November 2010, voters considered whether to institute a new income tax on the top 1 percent of income earners. Washington voters rejected a millionaires tax the same year Illinois instituted its historic income tax hikes.
The results speak for themselves. Washington has created 210,000 new jobs. In that same time period, Illinois has ranked last in the Midwest for job creation.
Illinois should follow Washington’s example, and reject the millionaires tax. Then the Land of Lincoln should stop the immoral punishment of success at all income levels and eliminate the state income tax altogether.
Michael Lucci is the director of jobs and growth at the Illinois Policy Institute