Wirepoints’ analysis uses national state-by-state migration data compiled by the Internal Revenue Service. The IRS reviews tax returns annually to track when and where people move. It also aggregates the ages, income brackets and adjusted gross incomes of filers.
In this first piece, we’ll cover Illinois’ net loss of tax filers and their incomes since 2000.
Losing people and their incomes
Illinois is a national outlier when it comes to losing residents and their taxable income to other states.
In 2016, IRS data shows Illinois gained nearly 165,000 people from other states and they brought with them a combined Adjusted Gross Income (AGI) of about $6.3 billion. Meanwhile, more than 250,000 Illinoisans left the state and they took more than $11 billion with them.
That means Illinois suffered a net loss of about 86,000 residents and a loss of $4.8 billion in taxable income – the equivalent of more than $100 million in state income tax revenues. […]
Illinois has lost tax filers and taxable income, on net, every year since 2000. Between 2000 and 2010, the state averaged net losses of about $1.8 billion in taxable income each year. Since then, the state’s losses have accelerated by about $500 million a year, growing to $4.8 billion by 2016.
* I asked Frank Manzo at the Illinois Economic Policy Institute to take a look. All emphasis is in the original…
Overall, the analysis of IRS numbers is correct. I arrive at the same numbers. However, there are a few problems with the analysis.
First, it’s based on “adjusted gross income (AGI)” but Illinois taxes individuals based on “net income.” Net income is AGI minus Social Security benefits, retirement income, military pay, certain business subtractions, etc. For example, if a retiree with a $100,000 pension moved to Florida, we lost their AGI but we didn’t lose income tax revenue, since retirement income is not taxed in Illinois. But we did lose things like sales tax revenue from their local spending.
Second, the data should be put in context. Clearly, the loss of population is a problem. A growing population from new births, net domestic migration, and net foreign immigration boosts economic activity. However, as the authors point out, Illinois lost about 86,000 residents and $4.8 billion in AGI in 2016. Illinois’ population is estimated at 12.7 million people and we had a total AGI of $664.7 billion in 2016. Net out-migration therefore represented about 0.7% of the population and 0.7% of AGI in Illinois. And 2016 was the worst year in terms of the data, when the state was in the middle of the two-year budget impasse which reduced business confidence, reduced funding for public and nonprofit services, and reduced state investment in higher education (note that the state also had a 3.75% individual income tax rate at this time).
Third, the authors make it seem as though the overall tax base has shrunk over time – but it hasn’t. While we have lost people who would have paid taxes, it is worth noting that both the number of tax filers and total AGI have still increased in Illinois over recent years. Look, for instance, at Illinois Department of Revenue data for 2016 compared to 2010. I’ll stick with AGI since that is what the authors used. Here’s the change over that time:
The number of tax returns filed with the Illinois Department of Revenue (i.e., the tax base) increased by 4.5%. Filers reporting $25,000 or less in AGI did decrease by 7.9%, but that was mainly due to a strengthening economy (other factors like student out-migration and Chicago’s minimum wage hikes, which raised incomes, may also have played roles). Upper middle-class filers reporting $100,001-$500,000 and affluent filers reporting $500,001+ both increased significantly, 32.6% and 44.4%, respectively. The “non-Illinois total” also rose for unknown reasons, probably due to income generated by out-of-state and foreign businesses within Illinois’ borders as the national and global economy expanded. Overall, the point is that the tax base is still increasing, but would have been larger with net in-migration.
All of that said, I’m not dismissing population loss as a non-issue. It is a problem. Illinois needs to boost economic growth, generate more good jobs with family-supporting wages, and improve its financial outlook by paying down debts in order for the tax base to grow substantially.