By David Stanczak
The term “death spiral” originally described the path of an airplane as it’s about to crash. Of late, it has been applied to public bodies whose finances have become completely unsustainable, or are headed in that direction. Once you’re in a death spiral, things that would normally fix the situation only make it worse. If you’re piloting a plane in such a spiral, your instinct is to pull up on the stick; but doing so only hastens the crash.
If Illinois isn’t in a death spiral yet, it’s close. There’s a major hole in the state’s operating budget. The standard wisdom when you’re short of revenue is to raise taxes. Assuming everything else stays the same, that will bring in more moneyand solve the problem. But everything else doesn’t stay the same. The tax hike itself changes things. Information newly released by the IRS shows that in 2011, the first year of Illinois 67% income tax increase, there was a net outflow of people from Illinois to every state and D.C. We’re not just talking retirement relocations here. Among the top 10 destinations for Illinois refugees are Indiana, Michigan, Wisconsin and Missouri. It was the Animals’ old song “We Gotta Get Outta This Place” come to life.
What made the volume of escapees worse was thedifference in incomes between those who left and those who arrived. The average taxpayer who left Illinois in 2011 was making $9,600 more a year than the average taxpayer who came here. The result was a net loss of $2.5 billion in personal income. Prior to the last income tax hike, the net annual loss was $1.9 billion, bad to be sure. But 2011 showed a hike in lost income of 31.6%, strongly suggestive of tax-motivated moves.
We don’t know if repeal of the last increase stanched the outflow of income, but it is likely that a return of the tax would worsen the situation, as would other schemes to soak the rich. Fundamental reforms are necessary to fix things, but Madigan and Cullerton want to keep the status quo. Maybe they’ll get to. How do you come out of a death spiral? Maybe you don’t.
David Stanczak, a Forum commentator since 1995, came to Bloomington in 1971. He served as the City of Bloomington’s first full-time legal counsel for over 18 years, before entering private practice. He is currently employed by the Snyder Companies and continues to reside in Bloomington with his family.
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