Illinois, Shoots Self In Foot

Illinois Democrats raised taxes yesterday. Many of them are blaming the rise on the financial crisis. Some are saying now they will “handcuff themselves” on spending.

Democrats have run this state for years. For the last eight two Democratic controlled General Assembly’s (our version of Congress) and two Democratic governors. Previous to that, we had Democratic GA’s, and Republican governors that looked the other way.

The corporate tax in Illinois will be slightly over 9%. Personal income taxes will be 5%. Recall that 2% FICA savings you got from the Feds in your paycheck. It’s gone. Taken directly away from you by Illinois Democrats.

The flight that has begun out of Illinois will only increase in velocity. If I was a retiree, why would I stay in Illinois? Florida has cheaper real estate and cheaper taxes. So does Tennessee. Don’t rail to me about Chicago’s culture. The tax increase has nothing to do with culture and everything to do with corruption.

Illinois businesses now will have to grovel and continue to practice crony capitalism to look for ways around the tax. Tax Increment financing districts will be lobbied for, special tax breaks.

As a shareholder of CME Group, I sincerely hope that they are weighing the costs going forward. There are plenty of other places to put employees. There are plenty of other states to headquarter. A 9% hit on earnings when they are in an incredibly competitive international business changes business strategy.

Other companies that are based in Illinois have got to be thinking the same thing. Even if they don’t move, they will not expand operations here. That’s called an opportunity cost. Illinois Democrats are going to learn about it.

Businesses doing analysis of where to move to or start up will not start up in Illinois. Austin, Texas Chamber of Commerce people are jumping with glee at the stupidity of Illinois lawmakers-and voters. In Florida and Tennessee they are ecstatic. Illinois may have just solved Florida’s real estate crisis.

There is one danger in all of this. There is a good chance that the economy will improve this year. An improving macro economy will increase government revenue everywhere-no matter what is done to the tax rate. Illinois Democrats will say, “I told you so, Laffer curves are bull. We can increase taxes and increase revenue.” It won’t be the tax increase, but economic events that they had no control over. It has been proven beyond a shadow of a doubt that tax rates influence behavior. In the long run, Democrats have compromised the people of Illinois.

The machine that is Illinois politics runs on money. If it can’t borrow it, or make the books look good with smoke and mirrors accounting, it taxes. The circular force that the machine is starts with legislative bodies and then filters into the private sector. The alderman taxes care of people by sticking them in government jobs with rich pensions. Then that person makes sure that if they have to hire a private company to do business, it’s someone’s pal. The private company kicks back to the appointed person, and alderman, and on election day makes sure that the precinct is full of voters. In three counties of the state, the machine works so well that more people are employed by the government, either directly or indirectly, than in the private sector. That will only increase.

How does this break down? When enough private sector people figure out that they have been taken for suckers and leave. Then, it’s only government people working for the government and paying for the government. There is no way that they can possibly do that.

It’s really simple why Illinois is in the shape that its in. Pensions are one reason. The many layers of government are another. Shikako is the Indian name for “skunk place”. Guess which city got its name from Indians?

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