Ep. 37: Love thy neighbor’s taxes
Other states across the country, including many of Illinois’ neighbors, have recently cut taxes, often permanently. But Illinois is going the opposite direction, hiking taxes on residents and businesses. Adam Schuster explains why how the state is stuck. Subscribe to the Policy Shop newsletter to learn more at: illin.is/newsletter
This edition of The Policy Shop is by Adam Schuster, vice president of policy at the Illinois Policy Institute.
The grass really is greener: Pandemic relief allowed 33 states to pursue real tax reform. Residents and businesses are desperate for relief, and these states are considering significant tax relief or restructuring of current tax codes this year. The result: lower tax burdens, increased competitiveness and boosted revenue growth.
In the Midwest, Illinois is surrounded by states that are adjusting their tax policies to make it more affordable to live and do business. Almost every neighboring state is taking steps to cut taxes permanently.
Interestingly, the two neighboring states where governors are also up for re-election this fall are the same places where tax relief is up in the air: Wisconsin and Michigan. Gov. Gretchen Whitmer in Michigan vetoed lawmakers’ plans to cut corporate and personal income tax rates while growing child care credits and retirement deductions. In Wisconsin, Gov. Tony Evers proposed single-year credits – much like Illinois got – that Republicans rejected in favor of structural, long-term reforms. One proposal would eliminate Wisconsin’s income tax entirely.
So, why not Illinois? Gov. J.B. Pritzker and our legislature didn’t pursue any permanent tax relief following the pandemic and glut of federal aid. Instead, they resorted to gimmicks that temporarily stall tax hikes on gas and groceries and expire after the November election. Illinoisans deserve more: A typical middle-class family in Illinois faces the highest tax burden of all 50 states. That burden is $2,165 bigger thanks to tax hikes signed by Pritzker, even after accounting for the $556 in one-time, temporary, election-year savings.
Pain points: The tax burden and our government officials’ inability to get it – and spending – under control is hitting businesses hard. Illinois is the only Midwest state that’s seen its ranking decline in the Tax Foundation’s State Business Tax Climate Index during the past five years.
To understand how the increased cost of living is hurting Illinois, consider the story of Zach Meiborg, co-owner of Meiborg Trucking:
“Illinois is becoming an increasingly hostile state to raise a family and do business in. My wife and I have run our family trucking, warehousing and logistics company in Rockford for 14 years, but we’re exhausted by the state of affairs in Illinois at every level. Whether it’s school boards, local municipalities or the bloated state bureaucracy, we no longer see Illinois as a state where we will choose to flourish.”
“In the next few weeks, we’re relocating to Houston and considering eventually moving our headquarters out of Illinois as well. If we stick around in Illinois, what is it going to look like in 20 years? Is it worth keeping our business here? Do we really want to raise our kids in an environment where we allow our government to push the schools around the way he has?”
“We pay over $1 million a year in tolls for just 200 trucks. That makes it hard to compete with other shipping companies that are bringing goods into Illinois but have lower fuel taxes in the states they’re coming from.”
This is just one example of how the current policies in Illinois are driving (pun intended) businesses over state lines.
Broken promises: When Pritzker first announced his candidacy for governorship back in 2018, he campaigned on the notion Illinois should “think big.” What he failed to mention is how much his big thinking would cost taxpayers. Less than three years into his term, the only “big” thinking relates to taxes … in the form of $5.24 billion from 24 new or increased taxes and fees he’s signed into law. Residents already paid more than neighboring states when gas taxes were 19 cents per gallon, and then Pritzker doubled the state gas tax to 38 cents per gallon. The rate is now 39.2 cents per gallon and projected to hit 45.2 cents in a little more than a year. Thanks to the automatic inflationary increases state leaders built into the tax hike, they never need to take an unpopular vote again to raise the gas tax. Before the hike, Illinois was No. 10 in the U.S. for gas taxes. Now it is No. 2.
Gina Williams from Barrington put it this way: “$35 for a 16-gallon fill up is now $72 for the same. Unfortunately, my driving habits can’t change much – I have kids in sports which require 30-plus minute trips each way. So these gas tax increases take a bite out of other parts of our budget. I know Pritzker is trying to ‘freeze’ taxes as though he’s doing us a favor, but any citizen who has been paying attention
the past two years should be able to recall what he has done. He will resume the tax increases the moment he is re-elected.”
S.O.S.: Illinois’ cost of living is only increasing. State politicians refuse to address the biggest cost drivers handicapping the state’s economy and preventing any possibility of permanent tax cuts. But the people of Illinois need those in office to seriously consider some permanent changes. Solutions. Or. Sink!
Addressing the public pension crisis is the only way to alleviate the never-ending pressure being put on taxpayers and make room for viable long-term tax cuts. Illinois is a pension outlier, because many other blue states have successfully reformed pension systems with public sector union support. Increasingly, Illinois is becoming a tax outlier, too, despite empty promises during campaign season.