Taxable Talk

I hope you detected the sarcasm in the headline. The Illinois Policy Institute reports that following the record tax increase in Illinois, Illinois lost more jobs in July than any other state.

There’s a wonderful chart in the article:

You don’t even need to see the spot marked “Tax Hike Enacted” to know that something changed drastically. True, the economy has gotten worse, but taxes matter. That’s true in Springfield as well as Sacramento…but it’s a lesson that politicians keep forgetting.

Hat Tip: Mish’s Blog

You are insolvent when the money you owe (your liabilities) are more than the money you have (your assets). Illinois has been in desperate financial trouble for some time; this won’t be news to readers of this blog.

Earlier this year on a party-line vote Democrats forced through a major tax increase: corporate income tax went up from 4.8% to 7% and personal income tax went from 3% to 5%. So would increasing revenue end the problems for Illinois?

No. Illinois pensions remain underfunded in the billions. The optimistic forecast is $54 billion; the pessimistic forecast is $80 billion. I think we can all agree it’s a lot.

This past week Senator Mark Kirk (R-IL) asked Federal Reserve Chairman Ben Bernanke if the Fed was watching Illinois and California; Mr. Bernanke said they are being watched.

Meanwhile, President Obama is demanding higher taxes for a debt ceiling deal. I’ll be as blunt as I can: The cause of the problem is government spending; the solution is cutting government spending. If spending is not cut, there is no long-term solution.

Of course, we’re dealing with Washington, so we’ll see what happens. Since Democrats control Springfield (Illinois), they chose the tax increase route. So far, Illinois remains in deep trouble.

No, they’re not the home states of the schools in the NCAA Final Four. They’re the states that would like Caterpillar to relocate from Illinois. Why would Caterpillar look to leave the Land of Lincoln and fly away?

Taxes and the business environment.

As this story in the Wall Street Journal notes, Illinois increased is personal income tax rate from 3% to 5% and the corporate tax from 4.8% to 7%. Businesses look at their bottom lines, and when it becomes too expensive to do business in one state, there are others that are far more welcoming.

In a letter to Governor Pat Quinn, Doug Oberhelman, Caterpillar’s CEO stated,

I want to stay here. But as the leader of this business, I have to do what’s right for Caterpillar when making decisions about where to invest. The direction that this state is headed in is not favorable to business, and I’d like to work with you to change that.

Will the Democrats in the state, who voted on a party-line basis for higher taxes, look to make the business environment friendlier?

I’m not holding my breath.

Back Home Again in Indiana is the state song of the Hoosier State. For those in the Land of Lincoln, it’s quite likely the Hoosier State will look much nicer; this morning, legislators approved an income tax increase from 3% to 5% and a corporate tax increase from 4.8% to 7%. Though these taxes are supposed to sunset in a few years, do you really think that will happen?

Joe Kristan has more.

By the way, I’ll have a long post on California and the budget when I return from my vacation.

Illinois is broke. While other states (such as California) have higher budget deficits, on a per capita basis Illinois leads the way. Illinois has a $13 billion deficit and some vendors haven’t been paid in nearly seven months.

In last week’s election, Democratic Governor Pat Quinn beat Republican Bill Brady by less than 20,000 votes (out of over 3.6 million cast). Mr. Quinn calls that a mandate to increase Illinois income tax rate by 1% (from 3% to 4%). We’ll see if the state legislature in Springfield agrees with Mr. Quinn or not. One way or another, it’s a mess in Illinois.

You may have noticed that its the “Blue” states which seem to have the biggest problems with state budgets. This includes high tax California and low tax Illinois. Perhaps both states are spending beyond their means though I suspect the public employee unions think that the spending is nowhere near their needs.