Taxes Matter V: Illinois Taxpayers Flee State

Today the Illinois Policy Institute released my study on the migration of people and income out of Illinois: “Leaving Illinois: An Exodus of People and Money.” (pdf)  Here is the Executive Summary:

Migration between the U.S. states is the ultimate expression of “voting with your feet.” People move for many reasons, but, when examined en masse, it’s clear that public policy significantly influences where people choose to live. This study undertakes a thorough examination of Illinois’s migration patterns to better understand progress on important public policy issues. Key findings include:

  • Illinois lost a net of 1,227,347 residents to other states between 1991 and 2009, or slightly more than one resident (1.22) every 10 minutes.
  • The top states that people from Illinois move to are Florida, Indiana, Wisconsin, Arizona and Texas.
  • Illinois lost 86,021 taxpayers between 1995-2007 to its border states: Wisconsin, Indiana, Iowa, Missouri and Kentucky. This represents $4.1 billion in lost Adjusted Gross Income (AGI) and $26.8 billion in cumulative AGI loss.
  • Illinois lost people and taxpayers to 40 states and the District of Columbia, and Illinois lost net income to 42 states and the District of Columbia.
  • The total net income leaving the state averaged over $1.8 billion between 1995 and 2007 with a total loss of $23.5 billion. Had this income stayed in Illinois, state and local governments would have collected an estimated $2.4 billion in additional tax revenue.
  • When a resident moves out of Illinois, the state doesn’t just lose income and taxes for that one year; rather, the state loses any income and taxes that resident would have generated for all future years. Compounding these figures over the 13 years assessed in this study – without adjusting for inflation – the state has lost $163.6 billion in net income and $16.9 billion in state and local tax revenue due to out-migration.
  • People move from Illinois to states with lower taxes (especially estate taxes), lower union membership, lower population density, lower housing costs and warmer weather.
  • The most significant driver of out-migration, on a percentage basis, is the estate tax. This is especially important considering that the number one destination state for former Illinois residents is Florida, a state with no estate tax (or individual income tax).

Conclusion: Without action, out-migration will continue to reduce the ability of both the private and public sectors to ensure Illinois’s economy becomes strong and vibrant.

In breaking news, the Wall Street Journal reports that Illinois Legislature just passed an enormous tax hike raising the individual income tax rate from 3 percent to 5 percent and the corporate income tax rate from 4.8 percent o 7 percent.  If you think the exodus from Illinois was bad in the past, this tax hike is going to send the exodus into over-drive . . . especially the out-migration of income which is more mobile than people.

Update: The Tax Foundation weighs in as well on the Illinois tax hike . . . in their State Business Tax Climate Index Illinois falls from 23rd to 36th, that’s quite a fall.

The State of America’s Private Sector XVI: Illinois Edition

Last week a massive, massive tax increase was announced in Illinois–did I mention that is was massive?  The details of the Illinois tax increase, according to the Chicago Tribune, are as follows:

Under the proposal, the state’s 3 percent personal income-tax rate would rise to 5.25 percent for four years, then fall to 3.75 percent. All told, that’s a 75 percent increase.

The personal income-tax hike is expected to net the state roughly $6.2 billion, and a corresponding corporate income tax increase could raise an additional $1 billion, Cullerton said. The rate businesses pay would temporarily jump from 4.8 percent to 8.4 percent.

The cigarette tax increase, which is expected to raise $377 million, would go into what was described as a “lock box” to increase education funding. Lawmakers said they hoped to double that amount using other funds to provide more than $700 million in new school funding this spring.

To gain votes for the package, the plan also would provide $325 in property tax credits to homeowners this year and a direct check to taxpayers in subsequent years.

As a measure of how desperate state government’s finances are, Cullerton said the state would use the income-tax hike to borrow $12.2 billion. Of that, $8.5 billion would pay overdue bills and $3.7 billion would cover a government worker pension payment lawmakers skipped when putting together the current budget, he said.

Using the relationship that shows the public sector crowds-out the private sector, I recently showed that two other modest tax increase proposals (modest is relative) would impose a significant cost on Illinois.  I’ve estimated that under this proposal Illinois’s economy could suffer a $17.3 billion reduction in personal income over the next three to five years as a result of this tax hike, translating into $3,625 less in personal income per household or the loss of 288,473 private sector jobs. Adding insult to injury, the average Illinois household also faces an increase in their state tax burden of $1,598.

The Tax Foundation also finds that this is a very bad deal for Illinois’s business tax climate.  They have also found that Illinois would also sport the “highest state corporate income tax in the United States and the highest combined national-local corporate income tax in the industrialized world.”  Yikes!

There will also be higher crime due to increased cigarette smuggling stemming from the higher cigarette tax.

If you live in Illinois and are wondering how much this tax hike will cost you . . . check out this tax calculator from the good folks at the Illinois Policy Institute.