Leave it to the Center for Tax and Budget Accountability to suggest another way to drive taxpayers out of Illinois, especially big taxpayers.
Last week the progressive, public union-friendly CTBA released a detailed proposal to expand Illinois’ estate tax by lowering the “exclusion amount” thereby subjecting more Illinois estates to the tax.
Today, Illinoisans’ estates with net assets in Illinois assessed at $4 million or higher face a tax ranging from 0.8% to 16%. Same for nonresidents who have physical or real property in the state valued at more than $4 million.
The CTBA wants Illinois to lower that $4 million exclusion, perhaps to as little as $1 million.
Nowhere in its report does the CTBA show any concern that its proposal will drive more taxpayers from Illinois. There’s no adjustment made to account for declining income, sales and other taxes that would result from giving Illinoisans more reason to leave. Instead, the CTBA appears to be sticking to its longstanding view that high taxes don’t contribute to interstate flight.
Ironically, it released its report the same week the Internal Revenue Service released its annual migration report, this time with the most dismal results yet for Illinois. The state lost a net 105,000 taxpayers and dependents for 2020, the IRS says, who took with them a record $10.9 billion of adjusted gross income. Since 2020 Illinois has lost a cumulative net $560 billion of adjusted gross income to other states. Our detailed report on the IRS numbers is here.
Flight from Illinois is increasingly concentrated in the wealthy, the new IRS numbers indicate. While the IRS data is about income and the estate tax is about wealth, which are different concepts, the IRS numbers still tell us something. First, more tax filers in the IRS’s top category, which is incomes over $200,000 per year, fled than ever before, as shown in the first chart.
Second, the incomes of people fleeing is far higher than those coming in, and the gap is growing, as shown in the second chart.
The cosmetic, political attraction of stiffer, state estate taxes is predictable. Worsening inequality in wealth and income is among the biggest challenges of our age.
That’s an exceptionally complicated issue to discuss another day, but clearly some solutions just won’t work at the state level, and estate taxes are among the most conspicuously senseless. It’s just too easy for many wealthy residents to flee to another state, which is why only 11 other states have an estate or inheritance tax. A major exception is family farmers, who can’t flee. That’s why farmers understandably are among the biggest opponents of the Illinois estate tax at any level.
We have a federal estate tax. Assuming you want to tax wealthy estates, it has to be done at the national level.
My entirely personal view, for whatever it’s worth, is that a federal estate tax in some form at some level may be sensible but nobody should let it get to that point. Andrew Carnegie had it right when he said, “He who dies rich dies disgraced.” Give it away smartly at or before death. It will be better spent that way than letting the government spend it.