Illinois state spending balloons as state economy stagnates

At least 49 tax hikes under Gov. J.B. Pritzker have driven state spending to record highs, even as Illinois’ economic growth has lagged the U.S.

Illinois lawmakers frequently boast about economic growth and development, yet Illinois has posted one of the slowest gross domestic product growth rates in the nation while the budget has soared.

Illinois’ budget doesn’t reflect economic reality

Illinois’ budget has grown at an alarming rate during Gov. J.B. Pritzker’s tenure. While government spending is a component of GDP, rapid increases in public spending can crowd out private economic activity. Higher taxes used to finance this public spending can hurt consumption and private investment, a dynamic that seems to be playing out in Illinois.

Since 2018, Illinois’ economy has grown just 7.4% – among the slowest of any state. In that same time, the state budget has grown over 36%, nearly five times faster than the economy. The U.S. economy has grown 18%, 2.5 times faster than Illinois’.

If not the economy, what has driven the state’s budget surge?

Pritzker’s administration has enacted at least 49 tax hikes since 2019. Some of the most egregious examples include:

• Doubling state gas taxes and tying annual increases to inflation thereafter, creating a $3.3 billion surplus in the state’s road fund.
• Halting the repeal of the franchise tax, which had been agreed to in 2019.
• Capping the retailers’ discounts – the portion of sales taxes retailers were allowed to keep as reimbursement for collecting the taxes – effectively raising sales taxes on brick-and-mortar businesses.

Not only have these hikes hit taxpayers and employers but have also weighed down Illinois’ economic performance. Illinois already has had among the highest corporate tax rates in the country, but recent changes have only made the system more complex and burdensome. The tax environment has led to the state losing businesses, and combined with high overall burden, has contributed to years of population decline.

What comes next?

Rather than reversing course, lawmakers are discussing moving Illinois from its long-standing flat income tax protections to a progressive state income tax, despite voters already rejecting the idea in 2020 and polls repeatedly showing opposition. Future tax changes are meant to pay for a budget that’s set to grow another 16% by 2030. Progressive taxation would allow state lawmakers to set who gets taxed and by how much, likely hitting small businesses and retirees before spreading to most middle-income groups.

Meanwhile, the U.S. economy is projected to average a 1.8% annual, inflation-adjusted growth during that period. That is slightly slower than it has been since the pandemic. If past trends hold, Illinois’ economy will continue to lag even that modest pace and state finances will be under even more strain.

Lawmakers must be held accountable

Illinois can’t afford to continue to punish taxpayers and businesses to sustain an unsustainable budget. Illinois’ state budget is $55.2 billion today, but had it grown with the economy since 2018 it would total only about $46 billion today, over $9 billion less.

Poor policy decisions such as rapidly increasing pension obligations, agreeing to hefty union contacts and creating flawed school funding formulas have meant fiscal mismanagement. Tax hikes have allowed lawmakers to neglect these underlying problems.

A budget cap tied to economic growth can help bring back fiscal responsibility. It would protect taxpayers from enduring even higher costs, while forcing lawmakers to confront past policy failures.

State leaders must focus on growing the economy. Strong economic performance will ultimately create more opportunities for residents and businesses, naturally growing the tax revenue Springfield craves.