Red-herring tax argument smells like dead fish
Studies show little if any connection between taxes and people leaving the state
A house for sale in Galena. If someone’s moving out, it’s just as likely someone’s moving in. (One Illinois/Ted Cox)
By Ted Cox
Opponents of the fair tax keep insisting it would prompt rich Illinoisans to flee the state, even though numerous studies have found that argument to be a red herring.
A red herring that, at this point, has been long dead and smells to high heaven.
But, with the help of a couple of new studies on the subject, let’s look the matter over one more time, shall we? Just feel free to hold your nose when you have to until we clear the air.
The Center for Tax and Budget Accountability ran a blog post earlier this month: “Setting the Record Straight on Illinois Migration.” The center is “a bipartisan, nonprofit research and advocacy think tank” based in Chicago, and it’s worked to debunk that “Illinois exodus” myth many times. Last fall, in a debate on the proposed progressive income tax with conservative radio host Dan Proft, Executive Director Ralph Martire insisted that tax policy has little if any effect on where people choose to live, and he pointed to how Wisconsin and Iowa both actually lose a higher percentage of their populations to Illinois than vice versa, and specifically Chicago, Cook County, and the collar counties — where taxes are highest in the state.
The center’s Allison Flanagan dug deeper into the numbers in the blog post. She found that Illinois has had negative net domestic migration for a century — meaning more people moved out of the state to other states than into the state from another state, every year but 1947, that outlier no doubt largely due to the Great Migration of African Americans coming north to seek jobs after the war.
Yet the Illinois population rose steadily throughout the 20th century until peaking just under 13 million in 2013, since declining slightly to 12.7 million last year. How? Immigration from other countries, of course, as well as a rising birth rate.
Let’s jump over for a moment to a piece published this week in The Chicago Reporter by Curtis Black titled “The Fair Tax Amendment: Why the ‘Illinois Exodus’ Could Be a Red Herring.” Black cites a 2017 study by the Center for Tax and Budget Accountability finding that “the number of people moving out of Illinois is below the national average for state outmigration.” He finds instead that “the state’s population is decreasing not because people are being driven out, but because birth rates are low and immigration numbers have declined,” especially so under President Trump.
Back to Flanagan and the center blog post: she finds that the worst migration rates since 2013, as a percentage of state population, were in 2016 and 2017. Surprise, that just happens to coincide with the General Assembly lowering the Illinois tax rate from 5 percent to 3.75 percent in what was then considered an olive branch extended to Gov. Rauner. Rauner instead put the state through two years without a budget, as he fought legislators for austerity and anti-union measures, causing chaos in public education and social services, until the assembly passed a budget over his veto midway through 2017 increasing the tax rate to the current 4.95 percent as part of a breakthrough change in the school funding formula. That two-year impasse, not higher taxes, is what spurred the so-called Illinois exodus.
In fact, as the Better Government Association pointed out in a study last year that we never tire of citing, when the state briefly raised taxes to 5 percent under Gov. Quinn, just ahead of Rauner, the people forced to flee the state tended to be low-wage workers, while the more well-to-do stayed and prospered.
That’s confirmed by Flanagan, who drew on Illinois Department of Revenue tax returns to find that between 2013 and 2017 the number of returns statewide declined for those filing with less than $25,000 in income, while the largest increase in the number of returns was in those making between $100,000 and $150,000.
Flanagan goes on to cite material from Stanford Professor Cristobal Young’s book “The Myth of Millionaire Tax Flight,” which she wrote “found only 2.4 percent of millionaires migrated (between) 1999 and 2011. 0.3 percent of those who migrated were for tax reasons, only proving that of the population that chooses to relocate, the number that relocate for reasons related to taxes is insignificant to tax policy.” Again, over those two decades, those most likely to move were those desperate to seek something better, making in the area of $10,000 a year.
Flanagan added, “The highest migration rates are realized at the lower-income level who are migrating as an attempt to better their lives. This seems to be consistent with the pattern found in returns for Illinois as well.” She pointed out the obvious: that the vast majority people don’t move at all, in that they’re tied to their family, friends, and business relationships. And here’s the stunner: the same goes for millionaires, in that “millionaires, like other people, value place-specific social capital.”
That’s a point One Illinois has made before as well.
And yet Citadel billionaire Kenneth Griffin recently tried to explain his $20 million contribution to an organization fighting the fair tax with a Chicago Tribune op-ed column stating: “People aren’t waiting until November to vote against the economic hardship created by Springfield’s spending addiction — they’ve been voting with their feet for the past decade as Illinois has lost more residents than any other state in the nation.”
Back in The Chicago Reporter, Black mentioned that op-ed, immediately adding that “even the Chicago Tribune, which continually flogs the supposed ‘Illinois Exodus’ in its editorials against the fair tax, has reported U.S. Census Bureau figures showing that Illinois is ‘near the middle of the pack’ among states for domestic outmigration.”
Black points out, as Flanagan did, that the number of Illinoisans filing tax returns rose most for those making between $100,000 and $250,000, so if Griffin was having trouble recruiting people to work at Citadel, as he claimed was the case, “the problem isn’t the state. It might be the employer.”
We’d like to add that, under the fair tax proposed by Gov. Pritzker and passed on to voters by the General Assembly last year, Illinoisans making up to $100,000 will see their tax rate actually decline, eliminating that argument for moving, while the increased funding for schools and social services, combined with the continuing increase in the minimum wage, ought to do much not only to retain working families, but encourage others to move here. It was austerity and governmental chaos that drove people out of Illinois. Let’s see if a healthier, more equitable state doesn’t bring them and others back.