By David Stanczak
About the only thing as predictable as death and taxes are news stories written during a time of tight budgets focusing on all the horrors that will come about if the budget situation doesn’t get resolved, usually by extra money to remedy the shortfall. In saying that, I’m not making light of the situation or denying its painfulness for people and institutions victimized by the vegetative action of our state leaders.
The problem with the coverage right now is that, unpleasant as it is, it is only part of the story, focusing only on the governmental outflow of funds, assuming that an additional outflow will remedy the pain and hardship written about but ignoring how the inflow of funds to the state might be increased. There is only one way to increase them: new or higher taxes and fees. The traditional process is to estimate how much additional revenue is needed, how much will be raised by a given tax increase, and then imposing the needed tax. Problem solved. But this analysis looks at fund-raising in a vacuum and ignores the fact that the tax itself has economic consequences. At the federal level, it’s called the Laffer curve which predicts that at some level lowering income taxes may produce a gain in revenue by stimulating economic activity and thereby creating more income to tax. The curve works in reverse as well; an increase in taxes may slow economic activity and reduce future tax collections.
At the state level, there is an additional application of the Laffer curve. A tax increase can lessen economic activity by driving people and businesses out of the state to tax-friendlier jurisdictions. The temporary income tax hike a few years ago opened the floodgates of people leaving Illinois, which is still bleeding taxpayers.
There is no doubt Illinois needs more money to pay its bills. As one taxpayer, I’m willing to pay my share. But I, and I suspect a lot of others, need some assurance that doing so isn’t just throwing more money down the same rat hole. That’s where reforms come in. Without something to make Illinois more attractive for businesses, we’re in a death spiral where those who can leave do, and the rest of us get soaked more and more for less and less.
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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