A new study from Pew Charitable Trusts has blown a hole in the myth that Illinois’ budget crisis is driven by a revenue shortage. Pew’s research shows that over the recession era, Illinois has increased state tax revenue more than any state except North Dakota. And revenues in Illinois and North Dakota have gone up for opposite reasons. Tax revenues in the Roughrider State have exploded as a result of massive economic growth, even while state income tax rates have been slashed in half. In Illinois, tax revenues went up in a stagnant economy as a result of the crippling 2011 income-tax hikes.
Thirty states are collecting less tax revenue today than they were before the recession began, including neighboring Michigan, Missouri, Wisconsin and Kentucky. But not Illinois. In the Land of Lincoln, tax revenues are up a whopping 22.5 percent over pre-recession highs, after adjusting for inflation, compared to a 2.5 percent average increase nationally.
Illinois’ tax-hiking experiment came at a human cost: the worst job-creation record in the Midwest since the 2011 income-tax hikes. And the tax squeeze isn’t only at the state level: Local property-tax rates have shot up in the same time period, putting taxpayers in a double bind.
In contrast with Illinois, tax-revenue growth in places such as North Dakota and Texas has resulted from economic growth which has expanded the pool of tax-payers by putting more people on the job. Texas’ legislature dramatically slashed its budget in 2011, and afterward the state economy recovered and started growing again. Tax revenues in Texas are 13 percent above their pre-recession highs, which is not surprising because the Lone Star State now has 1.5 million more people working than before the recession, a 13 percent increase in employment.
Illinois steered the opposite course. Instead of focusing on getting people back on the job by creating a friendly environment for businesses and entrepreneurs, Springfield politicians focused on bringing in more tax revenue. The results show a glaring contrast with Texas: While tax revenues are up 22.5 percent in Illinois, there are still 217,000 fewer Illinoisans working today than before the recession began, a 3.4 percent decrease.
Despite all of these new taxes, Gov. Bruce Rauner inherited a budget so broken that it required $1.6 billion in emergency funding just to make it through the 2015 fiscal year. In the face of a projected $6-7 billion shortfall for fiscal year 2016, Illinois politicians have proposed billions in new tax revenue.
Illinois’ pattern of taxing and spending is unsustainable and cannot continue. Illinois politicians have already raised taxes far beyond what has happened in any other state, and there are no results to show for it. Fiscal and economic reform should be at the top of the state’s policy agenda. The first step lawmakers should take is to embrace policies that encourage business expansion rather than exodus, such as workers’ compensation reform and local Right-to-Work laws. Lawmakers should also work to pass laws that will encourage entrepreneurship in the Land of Lincoln. By enacting policies that maximize job opportunities and economic output, Illinois can solve some of its problems through growth rather than attempting another round of failed tax hikes.
Michael Lucci is Director of Jobs and Growth for Illinois Policy Institute.