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Chamber releases conclusions from “fair tax” study

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Illinois

* Press release…

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.

* Response from Quentin Fulks, Chairman of Vote Yes For Fairness…

It’s not surprising that a study the Illinois Chamber of Commerce paid for in their efforts to protect our broken tax system is trying to mislead voters on the impact of the Fair Tax. The fact is our current tax system is fundamentally unfair, forcing essential workers like our nurses and grocery store clerks to pay the same tax rate as millionaires and billionaires. The Fair Tax will set things right, while keeping taxes the same or less for at least 97% of Illinoisans.

Background provided by the committee…

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]

posted by Rich Miller
Friday, Aug 7, 20 @ 12:42 pm

Comments

==It’s not surprising that a study the Illinois Chamber of Commerce paid for in their efforts to protect our broken tax system==

Never mind their biased study. Here’s my biased study.

Comment by City Zen Friday, Aug 7, 20 @ 12:54 pm
Reality?

Lots of words, but unless there’s $50 million behind this study to rebuff the onslaught of;

“97% won’t see an increase in their income taxes”

What exactly is this but a feel good piece for the wealthy 3%

Also;

Dear Fair Tax Crew,

Are you asleep, bored, complacent?

Y’all realize early voting is sneaking up on all of us, and VBM too will be coming around the corner.

Thinking about using that $50 million or you plan on giving back, like, $30 million…

… and fall short because “we ran out of time?”

You’d think with high unemployment, voters in fear of losing jobs (if they have them), houses, apartments… It’d be a good time to lay some groundwork?

Sorry to wake you from your sleep, my bad.

Stay safe, wear a mask, social distance.

OW

Comment by Oswego Willy Friday, Aug 7, 20 @ 1:02 pm
=== The trend is unmistakable….if we just raise taxes to 100%, everything will be perfect.===

The adults are talking. Facebook is down the dial.

Comment by Oswego Willy Friday, Aug 7, 20 @ 1:03 pm
==if we just raise taxes to 100%, everything will be perfect.== Said nobody ever.

Comment by Muddy trail Friday, Aug 7, 20 @ 1:07 pm
The Chamber’s description of the “independent analysis” they paid for would have been more credible if they’d been able to go at least two full sentences before calling it the “Tax Hike Amendment.”

Comment by CEA Friday, Aug 7, 20 @ 1:10 pm
Someone wrote a report with a predetermined outcome, the chamber got what they paid for.

Comment by Huh? Friday, Aug 7, 20 @ 1:10 pm
The proof is in the pudding. Graduated income tax states around us were doing better economically and financially than we were. If a graduated income tax rate was a problem it would have hurt them as well.

Texas and Florida, two no state income tax states pushed on us by the right wing, have no Medicaid expansion in the middle of a pandemic that they deliberately mismanaged. Indiana with its flat tax rate is very low income. Anytime you’re ready to leave for these states, Illinois Exodus pushers.

Comment by Grandson of Man Friday, Aug 7, 20 @ 1:18 pm
Willy, please shout louder so the Fair Tax crew can hear you. I will have already cast my vote 2 months from now. I don’t understand why they are waiting.

Comment by Go time Friday, Aug 7, 20 @ 1:21 pm
=Tax Hike Amendment=

That will come if the fair tax doesn’t pass. And their won’t be an amendment. It will just happen. And if you think that women and minorities are disproportionately impacted by a fair tax, that only impacts 97% of taxpayers, what would be the consequences when they get hit with an increase in the flat tax?

I don’t suppose they were asked to opine

Comment by Pundent Friday, Aug 7, 20 @ 1:25 pm
This study left out some of the other results of a tax hike: the sun will never shine on Illinois again, locust plagues, fertile soil will turn into clay, and all of Illinois waterways will turn into blood. /s

Comment by Steve Rogers Friday, Aug 7, 20 @ 1:27 pm
==“High Rate” Income Tax States Are Out-Performing No Tax States, Institute on Taxation and Economic Policy, February 2012==

Instead of citing an 8 year-old study that was refuted years ago, why not cite what the Institute on Taxation and Economic Policy thinks about no inflation indexing? Probably more relevant, given that the fair tax has no inflation indexing. Lots of great nuggets like:

“In practice, inflationary tax hikes hit middle- and low-income families more heavily relative to their incomes.”

“Inflationary tax hikes do have one potential advantage for policymakers—because they are basically invisible to taxpayers, they are much easier to enact than explicit tax increases. But in practice, they are not a good tax policy strategy.”

Comment by City Zen Friday, Aug 7, 20 @ 1:32 pm
Many of the “elites” I know are already sheltering out of state. It’s hardly a stretch to say raising their taxes will keep them away longer or forever.

Comment by 44th Friday, Aug 7, 20 @ 1:34 pm
“And if you think that women and minorities are disproportionately impacted by a fair tax, that only impacts 97% of taxpayers, what would be the consequences when they get hit with an increase in the flat tax”

It is currently politically unfathomable for the super Majority D’s to pass a tax increase that will impact their base. Not sure that narrative ever changes. Hence they are all in on the 97% mantra for the “Fair Tax”

Comment by Donnie Elgin Friday, Aug 7, 20 @ 1:39 pm
As mentioned, there’s no evidence to support the study’s outmigration story. Seems like that is placed in there simply to appeal to the Chicago Tribune editorial board.

The argument that higher corporate tax will be passed onto consumers might be true, but those consumers are national/international. Pepsi isn’t going to only raise prices on Illinois residents if the tax goes up. In fact, since they compete with Coca Cola, they probably wouldn’t raise prices at all. Weak argument.

And they don’t offer any alternative. You don’t like the tax cut for the middle class and tax hike for the rich because you think it hurts the economy. K. Cutting $3.4 billion in spending hurts the economy too. Raising the flat income tax or the sales tax hurts the economy too. What’s your alternative?

Comment by IL4Life Friday, Aug 7, 20 @ 1:44 pm
(Sigh)

===It is currently politically unfathomable===

Explain the last 30 years of income tax increases, include the last action to the income tax, was it increased or rolled back?

It’s unfathomable that ignorance to institutional knowledge on income taxes in Illinois would lead to your partisan thinking.

Comment by Oswego Willy Friday, Aug 7, 20 @ 1:45 pm
“Explain the last 30 years of income tax increases, include the last action to the income tax…that ignorance to institutional knowledge on income taxes in Illinois ”

That is a good one - the rate has been plus or minus a few % from the original 2.5% passed in 1969. Many of the actions were predicated on having a sunset on the increase. And since your brave GA has raised it so many times in the past why not again?

“Illinois’ first income tax rate was 2.5%, implemented in 1969 and in place through 1982. From 1983 and 2010, the rate fluctuated between 2.5% and 3%, where it stayed from 1990 to 2010. … Pat Quinn signed a temporary tax increase into law that hiked the rate to 5% through the end of 2014, when it was scheduled to sunset… the legislature overrode Rauner’s veto of a budget that included a tax increase, ending the impasse and bringing the rate back up to 4.95% where it remains today.”

https://www.nbcchicago.com/news/local/illinois-income-tax-rates-progressive/131673/#:~:text=Illinois’%20first%20income%20tax%20rate,stayed%20from%201990%20to%202010.&text=Pat%20Quinn%20signed%20a%20temporary,it%20was%20scheduled%20to%20sunset.

Comment by Donnie Elgin Friday, Aug 7, 20 @ 1:54 pm
===many times===

“Many” is doing a lot there, lol

From 1983 to 2010, that 27 years… it “fluctuated” how much, and how many times?

Oh.

Not only did Rauner *want* his veto overriden, Rauner used … every dime… of the new taxes… when he finally signed a budget.

Boy, you showed me.

Thanks for making my point.

lol

Comment by Oswego Willy Friday, Aug 7, 20 @ 1:59 pm
There don’t seem to be any recent publicly available polls on the Fair Tax. With no massive marketing campaign currently underway, it makes one wonder whether internal polling indicates that maybe it is a sensitive issue or a tough sell in the midst of the COVID crisis. Otherwise hard to imagine why they aren’t spending that $50 million.

Comment by natty lite Friday, Aug 7, 20 @ 2:41 pm
The amendment was tough to enact in good times. Polling has gone south since beginning of Covid. The Madigan revelations further convince voters that Springfield can’t be trusted to limit the tax to the top 3%.

Comment by Rutger Hauer Friday, Aug 7, 20 @ 3:29 pm
=== Polling has gone south since beginning of Covid.===

Cite please.

Thanks.

Comment by Oswego Willy Friday, Aug 7, 20 @ 3:30 pm
In the 1890s when Income tax proposals were being made many of the wealthy threatened to leave the country if that happened. Well it eventually happened. Since then the high tax rate has reached 90% and yet they are still here.

Comment by Bigtwich Friday, Aug 7, 20 @ 3:32 pm
=== The Madigan revelations further convince voters that Springfield can’t be trusted to limit the tax to the top 3%.===

Opinion, based on no statistical evidence.

Comment by Oswego Willy Friday, Aug 7, 20 @ 3:34 pm
Did anyone read Governor Cuomo’s comment this week… part of the story below.

When it comes to socking New York’s economy with tax hikes, Gov. Andrew Cuomo gets it — for now. Unlike with his no-end-in-sight COVID restrictions.

“I literally talk to people all day long who are in their Hamptons house who also lived here . . . or in their Connecticut weekend house, and I say, ‘You gotta come back,’ ” he related. He even offered to cook dinner.

No luck; they’re not returning. Instead, they’re thinking: “If I stay there, I pay a lower income tax, because they don’t pay the New York City surcharge,” he added.

Cuomo’s right: Some of the city’s wealthiest neighborhoods lost as many as 40 percent of their residents between March and May, thanks to the COVID-19 outbreak.

And new levies — a billionaires’ tax, an ultra-millionaires’ tax, etc. are among several ideas Dems are eyeing to plug Albany’s $30 billion two-year budget hole — will only push the rich to flee permanently. Taking their tax money with them.

It’s no coincidence, after all, that New York, where “1 percent of the population pays 50 percent of the taxes,” as Cuomo notes, has been steadily losing residents.

Comment by 4 percent Friday, Aug 7, 20 @ 4:17 pm
So, YES, wealthy families do flee states because of taxes

Comment by 4 percent Friday, Aug 7, 20 @ 4:18 pm
- 4 percent -

Two quick questions;

Does NYC have a city income tax?

What is the rate for a NYC resident in city and state income taxes and someone in, say, Chicago, making the same amount of income?

Thanks.

#ApplesToOranges

Comment by Oswego Willy Friday, Aug 7, 20 @ 4:21 pm
From what I have read and the information does not seem transparent, the fair tax does nothing to the wealthy. It raises business taxes that are passed on to the taxpayer. Sure large corporations will always adsorb more that a local business can and cannot be put in the same category, but the Nay Sayers will use it to skew the truth. Just change the flat rate on the wealthy. The sales tax in Illinois in more than enough to pay for all of the services needed if not squandered by our politicians. Taxes are never fair to the taxpayer when enacted without a vote.

Comment by Retired Silly Friday, Aug 7, 20 @ 4:35 pm
Is there ANY tax these rich businessmen are willing to pay? Selfish.

How many are actually based in Illinois vs. Delaware or Cayman Islands.

Comment by Chris Monday, Aug 10, 20 @ 10:26 am