By Stephen Moore, 6/23/17
The media has hyper-obsessed over the Kansas tax hike this year and has sold this as a repudiation of "supply side economics." But the real story in the states has been the catastrophic effects of "tax and spend" fiscal policy in Illinois.
Last week Republican Gov. Bruce Rauner continued his three-year standoff with House Speaker for Life Mike Madigan's liberal Democratic machine over a $5 billion annual income-tax hike. The Democrats have dug in their heels.
Anyone who thinks this soak-the-rich scheme will solve Illinois' long-term budget crisis should have their head examined. Illinois already ranks in the top three among the 50 states in state-local tax burden, so if raising taxes were any kind of solution here, the Land of Lincoln would be a Garden of Eden. Instead the state has been a financial basket case for years.
This is a state that is now $14.5 billion in arrears in paying its bills, whose bonds have been down-graded to near junk bond status, and that is losing its most valuable resource: its businesses and citizens. Small business contractors have to wait 6 months or more to get paid.
Back in 2013 the previous governor, Democrat Pat Quinn followed the advice of economists like Paul Krugman of the New York Times, and raised taxes on the very wealthiest residents of the Land of Lincoln. He argued that the super rich in Illinois could easily afford to pay a bigger share of the tax load and no one would leave.
The more Mr. Quinn raised taxes, the deeper the budget hole got. As a result, whole resort towns in Florida and Arizona have become high-income refugee camps of former affluent residents of Chicagoland.
In 2014 the voters dumped Quinn and his tax and spend economics and opted for businessman Bruce Rauner, a Republican. Rauner tried to fight the empire in Springfield, but was stymied every step of the way. Democrats laughed away his call for a constitutional spending cap, reforms to a pension system that is $200 billion in the red, a property tax cap, and so on. Instead the Democrats mantra sounded a lot like the giant carnivorous plant in Little Shop of Horrors: "feed me."
If there is any state that desparately needs term limits it is this one. The tax increase is a punt in dealing with the massive unfunded liabilities in its government pension system. According to the Council On Government and Financial Accountability, Illinois' pension payments are the major contributor to spending growth.
Following the recent credit downgrade, Moody's cited the state's overwhelming pension debt level as a contributor to the poor credit rating and negative outlook. In November, the state reported having $130 billion in unfunded pension liabilities, but Moody's calculates that level of pension debt as twice as high — or $251 billion. A recent Hoover Institution essay estimates Illinois' pension funding ratio to be 29%, the lowest level in the United States.
According to Donna Arduin, a former budget advisor to Governor Rauner, if the pensions aren't curtailed, soon as much as one in four tax dollars in the state will not go for schools, or roads, of health care, or police and fire, but pension payments to retired employees — many who no longer live in the state.
With a financial outlook like this, is it any wonder that some half-million more Americans left Illinois than moved there over the last decade? Only two states — California and New York, two other liberal pantheons — have lost more residents to other states than Illinois.
Moore is an economic consultant at Freedom Works and senior economic analyst at CNN.