Illinois residents are fleeing for more economically hospitable states. They go to Texas, Florida and other Sun Belt states because job prospects are better, tax burdens are lower and the weather is more temperate. The Exodus is real. It's damaging Illinois. And it may be getting worse.
The warning comes from a fellow sufferer, otherwise known as the governor of New York. Democratic Gov. Andrew Cuomo reports that New York state income tax revenue last year came up short by a projected $2.3 billion. Cuomo partially blames the departure of wealthy residents from his high-tax state in the wake of federal tax reform, which put a limit on the amount of state and local taxes that can be deducted on federal income tax forms.
When New York, already expensive, put an even higher tax burden on residents, some New Yorkers who could afford to leave did so. In Cuomo's memorable phrase on Monday: "Tax the rich. Tax the rich. Tax the rich. We did that. God forbid the rich leave."
As of Tuesday we hadn't seen an estimated 2018 tax revenue figure from Springfield, but a trend's a trend. There's reason to anticipate that some affluent, mobile residents of Illinois will reach the same conclusions as their brethren from New York that they'd be better off financially in a different locale. The Wall Street Journal reports that growing numbers of wealthy tax refugees from New York, New Jersey and Illinois are showing up in Miami to buy condos.
Congressional tax reform, which encouraged job growth by reducing the corporate tax rate, also shifted tax burdens by limiting to $10,000 the amount of state and local taxes that individuals could deduct in calculating federal taxes. There is a fairness argument to this so-called SALT deduction limit. Previously, Illinois politicians felt no pressure to keep a lid on taxes because they knew residents could take the deduction. The result: Residents of lower-tax states effectively subsidized affluent citizens of Illinois and other high-tax states.
In New York, Cuomo decried the end of the deduction, but not for reasons of fairness. He just wanted to keep constituents and his revenue stream, so he came up with a sneaky work-around that would allow residents to make payments to nonprofit groups controlled by local governments and deduct them as charitable contributions. The Internal Revenue Service nixed his idea. So people are leaving. In New York, he said, the most affluent residents -- the top 1 percent of earners -- pay 46 percent of the personal income taxes collected by the state each year. Cuomo said the situation is "serious as a heart attack."
We fear heart attacks, but we also see a potentially positive outcome in Springfield if Democratic Gov. J.B. Pritzker and the Democrat-controlled General Assembly absorb the right lesson from New York. The unfair federal subsidy of affluent Illinois households is dead. Those households will pay more in federal taxes -- a reflection of the high taxes levied by their state and local governments. That means there is a newly compelling reason for the governor, legislators and local officials statewide to manage budgets responsibly and reduce their high tax burdens.
But if the profligate ways continue, there will be trouble ahead: If state and local officials insist on ever-higher spending and then raising taxes, residents will rebel. Even more will leave this state. And as Illinois' population continues to shrink, a higher tax burden falls on everyone who remains.
Gov. Pritzker, remember the words of your colleague, the governor of New York: "Tax the rich. Tax the rich. Tax the rich. We did that. God forbid the rich leave."
Chicago Tribune, Feb. 5