I had the dubious “privilege” of growing up in Sweden, infamous for having the world’s highest taxes. I actually knew people who sincerely said, after they got a raise, that “I’m so happy I make more money – now I can pay more taxes”. It is very hard to find people who would seriously say the same thing here in America. Even the most ardent liberals know that taxes actually destroy entrepreneurial incentives and reduce economic activity. Illinois Governor Pat Quinn is a good example. As I explained earlier this month, Sears and the Chicago Mercantile Exchange have been threatening to leave the tax hell that Governor Quinn presides over. Now the Chicago Sun Times reports that the governor has recognized that high taxes are indeed a problem in Illinois:
Gov. Pat Quinn on Friday signed tax-break legislation designed to keep Sears and the Chicago Mercantile Exchange from leaving the state. … Sears and CME threatened to leave the state without the measures lawmakers adopted this week. The bill renews a credit Sears has been getting for years and guarantees the company a $15 million break on its taxes over the next decade, while retooling tax calculations for the profitable CME by changing how much of its business is subject to state income taxes.
This is effectively an admission by Governor Quinn that tax competition works. That in itself is a victory for common sense and good economic analysis. Hopefully, Governor Quinn is also learning the lesson of fiscal conservatism from this. His state reduced its spending by 7.3 percent in 2011 over 2010. While he did sign one of the most ridiculous tax increases in recent American history, a tax hike that has taken a toll on private employment in Illinois, it is indeed refreshing to see that Quinn is willing to learn when economic reality teaches him a lesson.
The question is how significant this will be over time. Illinois did not become the New York of the Midwest over night. The latest income tax increase is destructive in and by itself, but it was only the bitter icing on a bad-tasting cake that lawmakers in The Prairie State have been working on for a long time. According to the Tax Foundation, in 1999 Illinois had the 28th highest taxes in the country. In 2009 it ranked 13th. That money is being spent by the legislators on programs that make citizens dependent on government. It is not easy to terminate such programs, though the latest cut in the state budget may indicate that Illinois legislators are willing to think in terms of a reduced budget rather than spend-as-usual increases.
It is good that Sears and CME will be able to remain in Illinois. If they had U-Hauled to a low-tax jurisdiction it would have been a big blow to both the local economy of Chicago and to the state. Hopefully, the fact that the state legislature passed a law to extend tax breaks for these two corporations, and the fact that Governor Quinn signed it, are signs that the fiscal conversation at the state capitol is changing.