Illinois’ economic outlook will worsen under a progressive tax

by Ben VanMetre The American Legislative Exchange Council, or ALEC, released its sixth annual Rich States, Poor Statespublication earlier this week. This report showed that Illinois maintained its near dead-last ranking – with the third-worst state economic outlook in the nation. This news is further confirmation that state lawmakers’ poor policy decisions continue to sap economic activity and...

by Ben VanMetre
The American Legislative Exchange Council, or ALEC, released its sixth annual Rich States, Poor Statespublication earlier this week. This report showed that Illinois maintained its near dead-last ranking – with the third-worst state economic outlook in the nation.

This news is further confirmation that state lawmakers’ poor policy decisions continue to sap economic activity and ruin opportunities for residents and businesses living and working in Illinois.

The good news is Illinois can look to states leading the pack to see what policies are working. As the ALEC report notes:

One of the most outstanding elements of the United States’ system of federal¬ism is the opportunity for states to ex¬periment with different public policies, and for researchers of all stripes to retrospectively an¬alyze of the effect of differences in policy among the states.

One of the many policies that states experiment with is the various ways in which they collect revenue. In fact, Illinois’ flat-rate income tax is one of the few competitive policies the state has – especially when compared with the 34 states that currently apply higher tax rates to higher levels of income through a progressive income tax.

Unfortunately, political leadership in Illinois is considering abandoning the flat-rate income tax in exchange for a progressive income tax. It’s easy to see how this policy move would impact Illinois’ – the current performance of progressive income tax states make clear that a progressive income tax would destroy Illinois’ already suffering economy.

When comparing the nine states with no income tax with the nine states with the highest income tax, the ALEC report concludes:

We have examined the evidence for more than two decades, with data going to back to 1960, and have found that in any 10-year period, the states without an income tax consistently outperform the highest income tax states.

Most recently, between 2001 and 2011, the nine states with no income tax outperformed the nine states with the highest income taxes in population growth, Gross State Product growth, nonfarm payroll employment and state and local tax revenue. Consider the following statistics for this time period:

• Population growth:

• No tax states: 15 percent
• High-tax states: 6 percent

• Gross State Product growth:

• No tax states: 63.5 percent
• High-tax states: 45.2 percent

• Nonfarm payroll employment:

• No tax states: 12.7 percent
• High-tax states: 4.9 percent

• State and local tax revenue:

• No tax states: 76.3 percent
• High-tax states: 47.9 percent

The evidence is clear – a progressive income tax would push Illinois’ economic outlook even closer to dead-last. Instead of following failed policies, political leadership in Illinois should consider shifting their policy efforts to model those currently being implemented in some of the most competitive states.