The largest permanent income tax increase in Illinois history was followed by a slide to the 34th least free state in the Union, behind nearly all neighboring states.
Illinois is one of the least free states in the country, ranking 34th in the country for economic freedom. It is according to a November 7 report published by the Fraser Institute, a non-partisan research and education organization based in Canada. Illinois’ rank was worse than that of all neighboring states other than Kentucky.
The report measures government spending, taxation and labor market restrictions to create an index of economic freedom within state economies. In 2017, the most recent year of comparable data, the freest states were New Hampshire, Florida, Tennessee, Virginia and Texas. During this time, the less free states were New York, West Virginia, Alaska, Vermont, and Oregon. New York has been named the least free state in the country for the fifth year in a row.
Economic freedom is important to the health and well-being of an economy, as well as to the standard of living of residents of a state. States with upper levels economic freedom see higher per capita income, stronger economic growth and increased entrepreneurial activity. These states also have to attract more residents of other states and to live strong growth in employment and income.
Illinois voters to decide in November 2020 whether to remove the most competitive part of the state’s tax code, uniform constitutional income tax protection, and replace it with graduated tax rates by Governor JB Pritzker. This would further depress Illinois’ rankings on the Fraser Index.
Illinois income tax hikes hampered the state’s economic freedom
While Illinois ranked in the middle of the pack for economic freedom, the state’s ranking has dropped in recent years.
Illinois’ ranking slipped immediately after the temporary income tax hike that lasted from 2011 to 2014. After rebounding to 30th place when the tax was allowed to disappear, the state immediately returned. Ranked 34th in the country with the adoption of the largest permanent income tax hike in state history in 2017. However, as the state income tax hike Contributed to a shift in rankings, the Illinois lump sum income tax ranks ahead of most state income tax systems for economic freedom.
Pensions, property taxes and government union power undermine Illinois economic freedom
While it appears that income tax hikes in recent years have pushed Illinois further up the rankings for economic freedom, there are other factors that are holding back the state’s performance in the economy even further. ‘index.
Illinois’ biggest barriers to economic freedom – the areas with the lowest index scores – are public employee insurance and retirement payments, primarily pensions. Pensions now consume a significant portion of state and local budgets, with more than a quarter of the state’s General Revenue Fund budget spent on pension obligations, diverting service resources and imposing higher tax burdens on Illinoisans.
The second most important constraint is the extent of union power in the labor market. While Illinoisians in the private sector are more likely to be unionized than private sector workers in the rest of the country, the large disparities in union density between Illinois and most other states stem from the high concentration of employees. unionized in the public sector. The high density of the state’s public employees, who often earn much more than their private sector peers, has serious negative consequences for the labor market prospects of Illinoisians in the private sector. Not only does this require higher taxes, it can also increase the risk of unemployment for other Illinoisians.
Finally, the state’s exceptionally heavy property tax burdens hamper the economic freedom of Illinoisans. Illinois residents face the second highest property taxes in the country, and much of the property tax burden is due to massive state pension obligations and costly public sector collective agreements.
To change direction
If Illinois continues its momentum, it can expect to drop the Economic Freedom Index even further. In 2019, the Illinois General Assembly passed legislation to nearly double the state’s minimum wage and enacted 20 new tax and fee increases totaling $ 4.6 billion. Meanwhile, the state’s largest government union, AFSCME Council 31, was awarded a contract costing taxpayers an additional $ 3.6 billion and further strengthening union power.
Any legislative movement towards constitutional pension reform was noticeably absent from discussions in 2019. In the absence of reforms, not only will future obligations continue to weigh on a larger share of state budgets, but massive increases in government budgets. ‘taxes will be needed to pay state and local pensions. Ever-increasing income and property taxes to pay for these pensions will continue to wreak havoc on the housing market and hamper home value growth in Illinois – which is already lagging behind the rest. of the country – while increasing the cost of housing for owners and tenants.
Instead of tackling the cost drivers of the state of Illinois and local government, the conversation turned to further increases in income tax, this time in the form of a tax. on the progressive income of the State. Despite the enactment of two record income tax hikes in the past decade, Illinois’ pension problem continues to worsen. Expect the same if the governor’s graduated tax plan is approved by voters in the November 2020 ballot. If the measure passes and Illinois residents remove their sheltered flat income tax Constitutionally, politicians will be able to more easily raise taxes on different income groups, inevitably reaching the middle class. This power was viewed as a “blank check” to lawmakers by nearly half of the voters polled.
Lower levels of economic freedom can have serious Negative consequences for the results of employment and lowering the standard of living of Illinoisans. At the same time, states enjoying greater economic freedom to live stronger migration from other states; and stronger income and employment growth.