An independent analysis conducted by Berkeley Research Group in conjunction with Ariel R. Belasen, Professor at SIUE, shows that passage of the graduated income tax on the November ballot would have devastating consequences to Illinois’ economy, consumers and jobs. If passed, the Tax Hike Amendment would shrink Illinois’ economy by nearly $2 billion, increase consumer costs by $332 million, lead to out-migration that would reduce household spending, and result in disproportionately more job losses in hospitals, restaurants and individual and family services that tend to employ more women and minorities.
The authors of the study were granted complete independence to provide an objective analysis of the effects of the proposed Income Tax Hike Amendment.
“This independent study concludes what many of us already knew: this is the worst possible time for a $3.4 billion tax hike on Illinois families and businesses,” said Illinois Chamber of Commerce President and CEO Todd Maisch. “The pandemic has already crushed small business owners, manufacturers and farmers, and this independent study proves that the Tax Hike Amendment would be the last straw for many more.”
“Our report shows that the graduated income tax would be a devastating hit to Illinois’ already struggling economy. And, job losses would disproportionately affect women and minorities,” said Ariel R. Belasen, Ph.D., Professor at SIUE and independent study co-author.
The key findings of the independent analysis include:
Job losses would disproportionately affect women and minorities
Women and minorities are likely to be disproportionately affected by the job losses because three of the four sectors of the economy that the economic model indicates will be hardest hit by the tax increase. Hospitals, Restaurants, and Individual and Family Services – tend to employ relatively more workers from these demographic groups.
• According to the Bureau of Labor Statistics (BLS):
• Hospitals disproportionally employ women (74.9% of jobs in sector vs. 47% of all jobs across all sectors);
• Restaurants disproportionally employ Hispanic or Latino workers (26.8% vs. 17.6% of all jobs across all sectors); and
• The Individual and Family Services sector disproportionately employs women (78.3%) and African Americans (20.7% vs. 12.3% of all jobs across all sectors).
Reduction in GDP
Approval of the proposed Constitutional Amendment will cause up to a $1.8 billion reduction in the income of Illinois residents annually, as measured by the state’s gross domestic product (GDP).
Higher corporate taxes will be passed on to consumers
The corporate tax rate will increase from 9.5% to 10.49% (an increase of 10%), the second highest in the country. Studies show that some portion of revenues arising from an increase in the corporate tax rate ($332 million) would be passed on to suppliers and customers, increasing prices on goods and services, and potentially suppressing worker wages.
Out-migration of thousands of high-income households
Some of the job losses will result from reduced spending on food and services arising from an increase in the rate of out-migration by Illinois residents seeking to escape the relatively heavy tax burden that the state imposes on its residents. Based on the most-recent empirical studies by economists, we estimate that increased out-migration will lead to a reduction in household spending by taxpayers in the affected income brackets of up to 0.8%.
No material income tax relief
The average annual tax relief per filer in the lower income brackets is small, and might be less than a single family meal at a fast food restaurant for many filers.
TAX LIABILITY DOESN’T DRIVE RICH PEOPLE TO MOVE
A Study Found “Elites Are Embedded In The Regions Where They Achieve Success, And They Have Limited Interest In Moving To Procure Tax Advantages.” “The first study is actually not new. The American Sociological Association published a study on ‘Millionaire Migration and the Taxation of the Elite: Evidence From Administrative Data’ in its review periodical in 2016. But it draws extensively on 13 years of tax data from returns filed by million-dollar earners across the nation — 45 million returns — while “tracking the states from which millionaires file their taxes.” […] The study even examines whether some million-dollar earners stay close to home by simply jumping across state lines, but again without finding any proof. ‘When we focus on states’ border regions,’ it says, ‘we do not find compelling evidence that millionaires cluster on the low-tax side of state borders. Elites are embedded in the regions where they achieve success, and they have limited interest in moving to procure tax advantages.’” [One Illinois, 1/16/20]
The Study Found Elites Are Not Willing To Move To Exploit Tax Advantages Across State Lines. “The most striking finding of this research is how little elites seem willing to move to exploit tax advantages across state lines in the United States. Millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.” [Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, American Sociological Review, Vol. 81(3) 421–446, 2016]
Millionaires Have Lower Migration Rates Than The General Population. “First, millionaires are not very mobile and actually have lower migration rates than the general population. This is in part because family responsibilities and business ownership are higher among top income-earners, which embeds individuals in their local regions. Nevertheless, there is an observable pattern of elite migration from high-income-tax to lowincome-tax states; when millionaires migrate, their relocation decisions are influenced by tax rates, in a way that we do not see for the general population. Yet, because migration flows represent a very small share of top income-earners, the observed patterns of migration have little impact on the millionaire population tax base even over 13 years.” [Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, American Sociological Review, Vol. 81(3) 421–446, 2016]
The Study Found Because Millionaires Move So Infrequently, “The Revenue-Maximizing Top Marginal Tax Rate On Income Above $1 Million Is Much Higher Than The Current Tax Rate In Any State.” “Our core migration estimate translates into a population elasticity of roughly .1, meaning that a 10 percent increase in the top tax rate leads to a 1 percent loss of the millionaire population. Incorporating this estimate into optimal tax rate models (Mankiw et al. 2009; Piketty and Saez 2013) suggests that the revenue-maximizing top marginal tax rate on income above $1 million is much higher than the current tax rate in any state.” [Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, American Sociological Review, Vol. 81(3) 421–446, 2016]
The Study Found “Millionaires Do Not Use Their Higher Income To Achieve Greater Mobility Across States, But Rather Are More Grounded In Their States.” “First, the hypothesis incorrectly portrays millionaires as frictionless agents who have little or no social ties to place. Under this assumption, the primary constraints on migration are simply the ‘moving truck’ costs, which seem easy for top earners to absorb. However, our results suggest high social and economic costs of migration, even for the rich. Millionaires do not use their higher income to achieve greater mobility across states, but rather are more grounded in their states. The rich are different from the general population. They more often have family responsibilities—spouses and school-age children that embed them in place. They own businesses that tie them to place. And their elite income itself embeds them in place: millionaires are not searching for economic opportunity—they have found it.” [Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, American Sociological Review, Vol. 81(3) 421–446, 2016]
The Study Suggested That An Important Portion Of Income Is Place-Specific And Not Portable. “Most millionaires are the ‘working rich,’ and their incomes derive in part from place-based social capital in highly networked industries (Powell et al. 2002; Saez 2015; Saxenian 1994; Varner and Young 2012). Low levels of elite migration and limited responsiveness to top tax rates suggests that an important portion of income is place-specific and not portable.” [Millionaire Migration and Taxation of the Elite: Evidence from Administrative Data, American Sociological Review, Vol. 81(3) 421–446, 2016]
An Analysis By A Stanford Researcher Found Only About 2.4% Of Millionaires In America Change Their State Of Residence In A Given Year. “Only about 2.4% of US-based millionaires change their state of residence in a given year. Interstate migration is actually more common among the US middle class, and almost twice as common among its poorest residents, who have an annual interstate migration rate of 4.5%.” [Cristobal Young, Guardian, 11/20/17]
Only 15% Of Interstate Millionaire Migrations Bring A Net Tax Advantage. “When millionaires do move, they admittedly tend to favour lower-tax states over higher-tax ones – but only marginally so. Around 15% of interstate millionaire migrations bring a net tax advantage. The other 85% have no net tax impact for the movers.” [Cristobal Young, Guardian, 11/20/17]
Alaska Lost More Of Its Residents In 2019 Than Any State Beside West Virginia, Despite Having The Lowest Tax Burden. “Meanwhile, the state with the lowest tax burden, Alaska, is the 48th most populous. It lost more of its residents in the past year than any state besides West Virginia. ‘The kneejerk tax thing doesn’t work because you can find high-tax areas that are growing in the U.S. and you can find low-tax areas that are declining,’ demographer Rob Paral told the Better Government Association. ‘I know that gets lost on people who want to blame taxes on everything.’” [Chicago Magazine, 1/29/20]
STATES WITH A GRADUATED INCOME TAX RATE ARE MORE LIKELY TO CUT TAXES
Center For Tax And Budget Accountability: “States With Graduated Income Taxes Are More Than Twice As Likely To Cut Taxes As To Raise Them.” [Center for Tax and Budget Accountability, 5/7/19]
CTBA Analysis: The Flat Tax In Illinois Ensures Tax Increases Are Borne By Everyone, Rather Than Targeted At The Wealthiest. “This concern, however, is baseless. For one, Illinois’ flat tax has not prevented the state from enacting income tax increases in the last ten years. Instead, the flat tax has ensured that those tax increases have been borne by everyone, rather than targeted to the wealthiest who can most afford them.” [Center for Tax and Budget Accountability, 5/7/19]
A CTBA Analysis Found That Since 2003, States With Graduated Income Taxes Have Cut Taxes Nearly Two And A Half Times More Often Than They Have Raised Them On The Middle Class. “Our key finding: Since 2003, states with graduated income taxes have cut taxes nearly two and a half times more often than they have raised them on the middle class. In any given year, a state with a graduated income tax had a roughly 13 percent likelihood of cutting taxes — versus just a five percent likelihood of increasing them on the middle class.” [Center for Tax and Budget Accountability, 5/7/19]
A CTBA Analysis Found States With Graduated Income Taxes Have Seen Their Average Rates Fall Since 2002. “Another way of looking at this is at the total change in averages rates — just to make sure that, for example, the smaller number of tax increases aren’t larger in size than the more numerous tax cuts. (The post linked above, for its part, shows that a handful of states with graduated income taxes have seen their rates grow — but again, uses years from 1911 to 1936 as a baseline, rather than a more recent period.) The answer: No, they’re not. In fact, states with graduated income taxes have seen their average rates fall — both at the top and the bottom of their brackets — since 2002.” [Center for Tax and Budget Accountability, 5/7/19]
“HIGH RATE” TAX STATES HAVE ECONOMIES THAT ARE BETTER THAN OR COMPARABLE TO STATES WITH NO INCOME TAX
A Study Found Nine High Rate Tax States Have Seen More Economic Growth Per Capita Over The Last Decade Than The Nine States With No Income Tax. “In reality, however, residents of ‘high rate’ income tax states are actually experiencing economic conditions at least as good, if not better, than those living in states lacking a personal income tax.3 As Figure 1 shows, the nine ‘high rate’ states identified by Laffer have actually seen more economic growth per capita over the last decade than the nine states that fail to levy a broad-based personal income tax.” [“High Rate” Income Tax States Are Out-Performing No Tax States, Institute on Taxation and Economic Policy, February 2012]
A 2012 Study Found States With “High Rate” Income Taxes Have Economies That Equal Or Surpass States Lacking An Income Tax. “Whether looking at income levels, unemployment rates, or economic output per person, states with ‘high rate’ income taxes have economies that equal or surpass those in states lacking an income tax. The most commonly cited analysis purporting to show the opposite confuses population growth with economic performance, and fails to acknowledge the natural resource advantages enjoyed by a number of the most successful non-income tax states. There is no reason for states to expect that reducing or repealing their income taxes will improve the performance of their economies.” [“High Rate” Income Tax States Are Out-Performing No Tax States, Institute on Taxation and Economic Policy, February 2012]
WHEN KANSAS DRAMATICALLY CUT TAXES, THE STATE’S ECONOMY TANKED
After Kansas Severely Cut Taxes, Kansas Underperformed Most Neighboring States And The Nation On Economic Growth, Job Creation, And New Business Formation. “In 2012 and 2013, at the urging of Governor Sam Brownback, lawmakers cut the top rate of the state’s income tax by almost 30 percent and the tax rate on certain business profits to zero. Under ‘supply-side’ economic theory, these deep tax cuts should have acted — as Brownback then predicted — like ‘a shot of adrenaline into the heart of the Kansas economy,’ stimulating strong growth in economic output, job creation, and new business formation. But in reality, Kansas underperformed most neighboring states and the nation on all of those measures after the tax cuts.” [Center on Budget and Policy Priorities, 1/22/18]
Kansas’ 4.2 Percent Private-Sector Job Growth From December 2012 To May 2017 Was Less Than Half Of The 9.4 Percent Job Growth In The United States. “Kansas’ 4.2 percent private-sector job growth from December 2012 (the month before the tax cuts took effect) to May 2017 (the month before they were repealed) was lower than all of its neighbors except Oklahoma and less than half of the 9.4 percent job growth in the United States.” [Center on Budget and Policy Priorities, 1/22/18]
Kansas’ Tax Experiment Resulted In Downgrades In The State’s Bond Rating. “Moreover, Kansas revenues plunged, leading to cuts to education and other vital services and downgrades in the state’s bond rating. On June 6, 2017, the legislature terminated what Brownback had termed a ‘real live experiment’ in supply-side tax policy, repealing the business profits exemption and moving income tax rates back toward where they had started.” [Center on Budget and Policy Priorities, 1/22/18]