High-tax Illinois loses people, low-tax states gain in 2022

High-tax Illinois loses people, low-tax states gain in 2022

Low-tax states attract the majority of movers, while high-tax states push them away. Illinois takes nearly 13% of all money made in the state as taxes, and lost 141,656 residents in 2022.

Nearly 1.2 million Americans, including 141,656 Illinoisans, moved to other states in 2022, with most of them picking low-tax states, according to an analysis of U.S. Census Bureau and Tax Foundation data.

The top five states that drew new residents each had total effective tax rates of 9.9% or lower. Those states accounted for 68% of migrants moving to new states nationwide.

The bottom five states, including Illinois at third from the bottom, that lost residents all had total effective tax rates of 11.5% or higher and were responsible for 76% of all migrants moving to other states. Illinois state and local governments took 12.9% of all the money made during 2022 in the state as taxes.

Analysis of U.S. Census Bureau population data by the Tax Foundation in 2021 showed Americans were on the move and heading out of high-tax states and into low-tax states. They found that trend continued in 2022, a bad sign for states with high tax burdens such as Illinois.

Illinois’ population declined by a record 104,437 residents from July 2021-July 2022, according to estimates released Dec. 22 by the U.S. Census Bureau. It is the ninth consecutive year of population decline for Illinois. The only state that’s population has been in decline longer, West Virginia, currently is suffering its 10th consecutive year of losses.

Illinois is losing residents five times faster than any of its neighboring states. Worse, the data disproves a common notion that people are leaving Illinois because of the weather. While Illinoisans left the state, neighboring Kentucky, Wisconsin, Indiana and Missouri each gained residents from other states – and they don’t get their own, special weather.

Having a competitive tax system is a key factor in economic development, job growth and population growth. Illinois’ tax system is far from competitive.

Still, Illinois’ political leaders have continued to push for policies that would worsen the state’s outmigration problem. They appear to be  pushing again for the failed progressive income tax, which voters rejected in 2020. Analysis of domestic migration data by the type of income tax in a state shows clear results.

States with no income tax gained just under 660,000 residents in 2022. States with flat income taxes – and not named Illinois – gained just under 28,000 residents. States with progressive income taxes lost over 542,000 residents in 2022.

It is also worth noting Arizona, which gained nearly 71,000 residents in 2022, is switching from a progressive income tax structure to a flat income tax in 2023. It had two income tax brackets for 2022 and taxed income at 2.55% and 2.98%. It is switching to a flat income tax of 2.5% in 2023. Had it been counted as a flat tax state this year, flat tax states would have gained nearly 100,000 residents in 2022, making the case for either a flat or no income tax even more compelling.

Idaho and Mississippi are joining Arizona this year in moving away from progressive income taxes and switching to a flat income tax. Massachusetts is the only state raising its income tax, switching from a flat tax to a progressive income tax in 2023. Massachusetts, like Illinois, was among the five worst states for domestic migration in 2022. By switching to a progressive income tax, Massachusetts will likely continue to face migration challenges.

Despite this evidence, Illinois leaders are once again pushing for a progressive income tax referendum. Illinois state Sen. Robert Martwick, D-Chicago, wants to try again to impose a progressive income tax on Illinoisans. Voters soundly rejected the last ballot proposal for a progressive income tax in 2020, but Martwick and other top lawmakers, including Illinois House Speaker Emanuel “Chris” Welch, don’t seem to be taking “no” for an answer. The last time Martwick pushed for a progressive income tax, he proposed hiking taxes on those making as little as $17,300.

Illinois needs its lawmakers to focus on real policy solutions, not political agendas that would clearly exacerbate the state’s existing problems.

As the Tax Foundation report notes, the COVID-19 pandemic has brought changes to the way we live and work, with remote work now making it far easier for people to relocate. High-tax states such as Illinois should use this information to reform their tax systems and ensure they are making themselves as financially attractive to new businesses and residents as possible.

Illinois needs to adopt its own reforms to move its finances forward and position itself to be able to offer the types of tax reforms being adopted in neighboring states. Without pension reform and other structural budget reforms, Illinois will remain a high-tax state and with an economy that lags its neighbors and continues driving businesses and residents away.

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