The Ba­nana Repub­lic of Illi­nois

Its ‘tax and spend’ pol­icy is caus­ing res­i­dents to flee, with their pen­sions

The Washington Times Daily - - COMMENTARY - By Stephen Moore

The me­dia has hy­per-ob­sessed over the Kansas tax hike this year and has sold this as a re­pu­di­a­tion of “sup­ply side eco­nomics.” But the real story in the states has been the cat­a­strophic ef­fects of “tax and spend” fis­cal pol­icy in Illi­nois.

Last week Illi­nois House Speaker for life Mike Madigan en­dorsed a $5 bil­lion an­nual in­come tax hike. This would be the largest tax in­crease of any state in years. Repub­li­can Gover­nor Bruce Rauner has blocked new taxes for three years but is now un­der in­tense pres­sure from the Spring­field po­lit­i­cal ma­chine to agree to the revenuue heist.

Any­one who thinks this soak-the-rich scheme will solve Illi­nois’ long term bud­get cri­sis should have their head ex­am­ined. Illi­nois al­ready ranks in

the top three among the 50 states in state-lo­cal tax bur­den, so if rais­ing taxes were any kind of so­lu­tion here, the Land of Lin­coln would be a Gar­den of Eden. In­stead the state has been a fi­nan­cial bas­ket case for years.

This is a state that is now $14.5 bil­lion in ar­rears in pay­ing its bills, whose bonds have been down­graded to near junk bond sta­tus, and that is los­ing its most valu­able re­source: its busi­nesses and cit­i­zens. Small busi­ness con­trac­tors have to wait 6 months or more to get paid.

Back in 2013 the pre­vi­ous gover­nor, Demo­crat Pat Quinn, fol­lowed the ad­vice of economists like Paul Krug­man of The New York Times, and raised taxes on the very wealth­i­est res­i­dents of the Land of Lin­coln. He ar­gued that the su­per rich in Illi­nois could eas­ily af­ford to pay a big­ger share of the tax load and no one would leave.

The more Mr. Quinn raised taxes, the deeper the bud­get hole got. Whole re­sort towns in Florida and Ari­zona have be­come high-in­come refugee camps of for­mer af­flu­ent res­i­dents of Chicagoland.

In 2014 the vot­ers dumped Mr. Quinn and his tax and spend eco­nomics and opted for busi­ness­man Bruce Rauner, a Repub­li­can. Mr. Rauner tried to fight the em­pire in Spring­field, but was stymied every step of the way. Democrats laughed away his call for a con­sti­tu­tional spend­ing cap, re­forms to a pen­sion sys­tem that is $200 bil­lion in the red, a prop­erty tax cap, and so on. In­stead the Democrats’ mantra sounded a lot like the gi­ant plant in the film “Lit­tle Shop of Hor­rors”: “feed me.”

If there is any state that desparately needs term lim­its it is this one.

The tax in­crease is a punt in deal­ing with the mas­sive un­funded li­a­bil­i­ties in its gov­ern­ment pen­sion sys­tem. Ac­cord­ing to the Coun­cil On Gov­ern­ment and Fi­nan­cial Ac­count­abil­ity, Illi­nois’ pen­sion pay­ments are the ma­jor con­trib­u­tor to spend­ing growth. Fol­low­ing the re­cent credit down­grade, Moody’s cited the state’s over­whelm­ing pen­sion debt level as a con­trib­u­tor to the poor credit rat­ing and neg­a­tive out­look. In Novem­ber, the state re­ported hav­ing $130 bil­lion in un­funded pen­sion li­a­bil­i­ties, but Moody’s cal­cu­lates that level of pen­sion debt as twice as high — or $251 bil­lion. A re­cent Hoover In­sti­tu­tion anal­y­sis es­ti­mates Illi­nois’ pen­sion fund­ing ra­tio to be 29 per­cent, the low­est level in the United States. Ac­cord­ing to Donna Ar­duin, a for­mer bud­get ad­vi­sor to Gov. Rauner, if the pen­sions aren’t cur­tailed, soon as much as one in four tax dol­lars in the state will not go for schools, or roads, of health care, or po­lice and fire, but pen­sion pay­ments to re­tired em­ploy­ees — many who no longer live in the state.

With a fi­nan­cial out­look like this, is it any won­der that some half-mil­lion more Amer­i­cans left Illi­nois than moved there over the last decade? Only two states — Cal­i­for­nia and New York, two other lib­eral pan­theons — have lost more res­i­dents to other states than Illi­nois.

The re­cent ac­tions in Spring­field bring to mind the words of for­mer In­di­ana Gov. Mitch Daniels who once joked: “Be­ing a neigh­bor to Illi­nois is like liv­ing next door to the Simp­sons.” So what is the les­son for the rest of Amer­ica? Soak the rich eco­nomics al­most never works. As tax re­ceipts keep sink­ing in Illi­nois, the safety net is tat­tered, the roads are in dis­re­pair, crime is out of con­trol in Chicago, and the state is home to some of the worst schools in the na­tion.

When you try to soak the rich, they leave, the state goes bank­rupt and it’s the mid­dle class that gets all wet. How’s that for tax fair­ness?

Why is the na­tional me­dia ig­nor­ing this story?


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