Cash-strapped Illinois is one step closer to passing a new income tax with the potential to seriously accelerate the exodus of high-earning taxpayers from the most financially dysfunctional state in America.
Lawmakers in the Illinois House of Representatives on Monday approved a constitutional amendment aiming to get rid of the state's flat income tax, clearing the way for the amendment to be included on the November 2020 ballot for ratification by the voters. Governor JB Pritzker is widely expected to sign it the amendment, which has already been passed by the State Senate.
According to the Democrats who backed it, the tax will help fix the state's recurring deficits by creating a sorely needed new revenue source: The higher taxes on those earning more than $250,000 would raise more than $3 billion annually while leaving taxes on 97% of the state's residents unchanged.
There's no question that more revenue (or, perhaps, less spending) is badly needed. Chronic budget shortfalls, drastically underfunded pensions (to the tune of $134 billion) and $7 billion in unpaid bills have left Illinois' finances in terrible shape. Illinois' credit rating being pushed to one level above junk, the lowest in the country, Bloomberg reports.
Pritzker, who took over from unpopular Republican Gov. Bruce Rauner in January, has tried to spin the tax as a "fair tax", while ignoring the state's Republicans, who have accused Democrats of refusing to accept responsibility for the state's dire fiscal situation, and instead seeking to tax their way out of the problem.
But anybody who thinks the new tax will make a meaningful difference in the state's finances is sadly mistaken.
As Mark Glennon of WirePoints explained in a post published last month, the $3.4 billion in revenues expected to be raised by the new tax will cover barely one-third of the "hole" in the state's pension obligations.
Here’s the central message now being blasted across the state by proponents of a $3.4 billion state income tax increase on high earners: "Illinois is in a $3.2 billion financial hole. A Fair Tax could fix that and reverse the damage." That’s an epic lie. The "hole" isn’t $3.2 billion. It’s roughly a quarter of total revenue according to this work, which is consistent with our own numbers - about $10 billion - and that’s just at the state level. The new $3.4 billion will go down a nearly bottomless pit.
The follow chart shows just how dire Illinois' pension situation truly is.
And while the new taxes might make up for some of this shortfall, at least in the short term, once the new taxes start to bite, those wealthy residents saddled with the new tax will almost inevitably start looking for greener pastures - and sun-belt states like Arizona and Florida offer several advantages over chilly Illinois.
This is an original article by Tyler Durden of Zero Hedge. A copy of the article can be found here.
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