Illinois can gain or lose from ‘transaction tax’ fiasco
Earth continues to spin on its axis, which tells us many Chicago and Illinois politicians are about to raise taxes.
Never mind that voters just trashed Democrats’ scheme for a graduated income tax. Already the pols are whimpering about howbadly the city and state “need” new revenue. So don’t be surprised if the big spenders and their allies— why hello, ChicagoTeachersUnion— drag out their perennial threat to slap a “transaction tax” on financial exchanges here.
The so-called LaSalle Street tax is always on the table to help close budget gaps for hungry politicians, to raise money for union contracts and pay hikes, and to steady the state of Illinois budget, which is perennially in the red. Democrats in Congress and President-elect Joe Biden also have indicated their support for transaction taxes.
NewJersey’s loss, our gain?
Fortunately for overtaxed Illinois residents, protectionmay be at hand because a similar temptation has gripped Democratic leaders in another high-tax state, New Jersey. The outcome: Even beforeNew Jersey lawmakers institute a transaction tax, which they’re debating, financial exchanges and trading companies are plotting relocations to other states.
But there’smore here for Illinois officials than a cost-free lesson in howfoolish they would be to adopt a transaction tax: It’s possible that thework nowdone by data server farms inNew Jersey could— miracle of miracles— migrate to Illinois, benefiting this state.
Aswewalk you through the unfolding transaction tax fiasco inNewJersey, then, understand that Illinois has a double-edged opportunity. Lawmakers here can follow the same path and invite the same miserable outcome that threatens theGarden State. Or Illinois can exploitNewJersey’s plight and lure its data farms here while the state remains transaction-tax free. That, of course, couldmeanmore Illinois jobs, commerce and resulting tax revenues.
Tax-happy politicians
To understand a transaction tax, consider all the trades and sales of stocks, futures, options and other instruments that are the lifeblood of our economy. Financial exchanges process those transactions on computer servers that can function in locales distant fromthe exchanges themselves.
Politicians and public employee unions tend to live in denial of the data industry’s mobility, even though exchanges have proven in trial runs that they comfortably can relocate to tax-friendly states. Illinois already hosts dozens of data farms, chiefly in metropolitan Chicago, and last year joined some 30 other states that offer tax incentives to attract these facilities.
NewJersey Gov. PhilMurphy, a Democrat with a record of pushing tax hikes when spending reductions could suffice, wants to put a teensy-weensy tax— perhaps one-quarter of a cent— on each data transaction in his state. If all those transactions continued to take place withinNew Jersey, that could mean an additional $10 billion-with-a-b in tax revenue.
That looks like freemoney! What’s for a politician not to like about that? Never mind that exchanges and trading companies surelywould offload any new expense not only onwell-to-do investors, but also onto the many millions of Americans whose 401(k) account transactions course through servers inNewJersey.
In response, exchanges and trading companies say they’re ready tomove in what could resemble a longhorn cattle drive. TexasGov. Greg Abbott has been meeting and jawingwith representatives of theNewYork Stock Exchange, the numbertwoNasdaq StockMarket, Chicago-based
Citadel Securities andCboeGlobal Securities, TDAmeritrade… the list of finance heavyweights threatening to abandonNew Jersey does go on.
Rather than having a new $10 billion, NewJerseywould lose companies, jobs, residents and all the tax revenue they generate.
Whosaid Illinois Exodus?
Abbott, a Republican, hosted aNov. 20 gathering at the Texas governor’s mansion to schmooze the moneymovers. Afterward, according to theDallasMorning News, he couldn’t have sounded more pleased at their reactions: “They dowant to move at a fairly swift speed. … Our ability to expand and build out the capacity thatwould accommodate their needs (in Dallas-FortWorth) is very easy to accommodate.”
Are the companies bluffing? Maybe just squeezingGov. Murphy? We’ll see. Gov. Abbott certainly can’t yet lock the livestock in his pen. TheMorningNews reports that the exchanges also have spoken with officials inVirginia, North Carolina and Illinois about relocating to one of those states.
Abbott touts his state’s affordable living, abundance of electrical generation for server farms, and metroDallas’ available workforce as newcomers migrate toTexas fromcostlier states. Who said Illinois Exodus?
To varying degrees, each state in this mix can compete on those variables. Butwe’d bet that Abbott spentmuch of thatNov. 20 meeting boasting about one factor that especially disadvantages Illinois: our high state and local tax burden. Which our politicians are likely to raise. Mayor Lori Lightfoot and the ChicagoCityCouncil just did, raising property taxes for citydwellers $94 million for next year’s budget, and they linked future increases automatically to inflation.
The nonpartisanTax Foundation’s 2021 ranking of the 50 states’ business climates putsTexas at 11th-best. Illinois by unfortunate contrast ranks a lousy 36th. And as Chicago and Illinois politicians lean more on taxpayers, Texas isn’t content to be one of seven states that don’t have an income tax. For added measure, voters last year banned state income taxes and made it all but impossible to create them in the future.
That’s right, even as Illinois Democrats pushed a constitutional amendment to enable endless income tax increases here, Texas Republicans championed a constitutional amendment that strengthens their state’s ability to attract employers and workers.
On its editorial page, theMorningNews is taking wry satisfaction inNewJersey’s plight— and in the tendency of so many states and cities to keep raising taxes:
“The imperative (elsewhere) is to pay for an ever-expanding government that promises to carry us fromcradle to grave, so long as it can tax us from womb to tomb. Here in Texas, we are lucky enough to still be able to look on this mode of governance with a mix of detached concern and pleasant recognition that other states’ folly will be to our benefit.”
Keep that in mind the next time leaders of theCTU— or liberal tax-and-spenders on theChicago City Council or in the Illinois General Assembly— demand a transaction tax, the “LaSalle Street tax.”
Ah yes, LaSalle Street, where financial exchanges and related companies have built one of Chicago’smost dominant and successful industries. It generates jobs, property tax revenues, philanthropy and a host of other benefits.
So what’ll it be, Illinois? An all-out effort to steal business fromNewJersey? Or the constant threat of a transaction tax here that could drive a Chicago industry into Gov. Abbott’swaiting arms?