The Fair Tax Amendment: Why the ‘Illinois Exodus’ could be a red herring

Surveys and studies show Illinois’ population is decreasing because birth rates are low, immigration numbers have declined, people want to be closer to family and they are pursuing job offers.

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Ken Lund / Flickr

Welcome to Illinois sign near U.S. 36 Near Hannibal, Missouri

The arguments against the Fair Tax Amendment on the ballot in November — when voters will decide whether to amend the state constitution to allow a progressive income tax —  often hinge on distortions of reality.

One common distortion is Illinois residents are fleeing the state due to high taxes, and a graduated income tax that has higher rates for higher-income taxpayers would accelerate that so-called exodus. It was employed yet again last week — this time by the state’s wealthiest man.

Announcing that he was donating $20 million to the campaign against the Fair Tax Amendment, billionaire Ken Griffin said, “People aren’t waiting until November to vote against the economic hardship created by Springfield’s spending addiction — they’ve been voting with their feet for the past decade as Illinois has lost more residents than any other state in the nation.”

Let’s look at that argument step by step. It’s true that the state’s population is declining. But it’s not true that the reason for that is a high rate of residents moving out of state.

In fact, the number of people moving out of Illinois is below the national average for state outmigration, according to a 2017 analysis by the Center for Tax and Budget Accountability. The state’s population is decreasing not because people are being driven out, but because birth rates are low and immigration numbers have declined. Since the CTBA’s study, outmigration numbers in Illinois have continued to decrease.

Even the Chicago Tribune, which continually flogs the supposed “Illinois Exodus” in its editorials against the Fair Tax, has reported U.S. Census Bureau figures showing that Illinois is “near the middle of the pack” among states for domestic outmigration.

As for the folks who are leaving Illinois, according to the Tribune’s own reporting, the state’s fiscal challenges — which result from the state’s flat income tax, many experts say — are cited by relatively few people as their reason. A U.S. Census Bureau survey shows that the most common reason for moving, given by nearly one-third of people moving out of state, is a job transfer or new job offer. The second and third most common reasons are to be closer to family and “other housing reason,” including lower housing costs.

Income tax rates are clearly not a major reason for people leaving the state. For white Illinoisans, the top destinations include St. Louis, in a state where most income is taxed at a higher rate than in Illinois, and Minneapolis, where income tax rates are higher and steeply graduated. (The Federation of Tax Administrators has a handy chart of state income tax rates.) For Black Illinoisans, the top destinations include Atlanta, where most income is taxed at a higher rate than in Illinois; Wisconsin, where most income is taxed at a higher rate, and rates rise steeply for higher income levels; and Indiana.

Indiana is a special case. In addition to a low, flat state income tax, many Indiana counties also levy income taxes. A large proportion of Chicago-area residents have moved to Lake County, Indiana, where the county income tax added on the state tax brings rates very close to Illinois’ level. What Lake County and many other places have are lower property tax rates. Illinois has the second highest property tax burden in the nation because of its failure to fund schools adequately at the state level — a result of the regressive tax structure created by the flat tax, which fails to capture revenue where incomes are growing, at the top of the ladder.

And contrary to the claims of Fair Tax opponents, tax rates and fiscal challenges in Illinois do not seem to be driving away high income earners. The CTBA has found that those Illinoisans earning more than $100,000 per year who move out of state (only some of whom would be affected by Fair Tax rate changes) are in fact most likely to move to East and West Coast cities where income tax rates are much higher than they are here.

Meanwhile, Chicago attracted more new residents earning $100,000 or more than any city besides New York between 2010 and 2016. And Chicago attracted more people earning more than $200,000 per year than any city in the country. So much for people “voting with their feet.” 

So when Griffin writes that his hedge fund is finding it “harder and harder to convince people to move here” the problem isn’t the state. It might be the employer.

In any case, it’s clear that the Illinois Exodus is simply a red herring — one among many.

The state’s fiscal challenges are not due to overspending on services. In real dollars, Illinois spending on health care and other services dropped sharply over recent decades. It’s not due to excessive pension benefits for state employees, either. More than half of the $100 billion increase in the state’s pension debt over the past two decades was a result of borrowing from pension funds to cover revenue shortfalls in the state budget, according to the CTBA. Pension benefits contributed less than 6% of that increase.

Service cuts and pension problems result directly from the inability to raise sufficient revenue due to the state’s failure to tax the highest income earners — like billionaire Ken Griffin — at appropriate levels. The Fair Tax Amendment would help fix that by bringing Illinois’ tax system into line with the majority of other states — not to mention the federal government. Let’s hope voters aren’t distracted by scare tactics based on blatant distortions of reality.