Illinois proves state personal income tax rates matter

February 29, 2012

State legislatures across the country have begun their legislative sessions. States like Indiana, led by Governor Mitch Daniels, are continuing the pursuit of pro-growth policies such as Right to-Work. Oklahoma Governor Mary Fallin and other policymakers are leading the path towards phasing out the state’s personal income tax. Illinois, by contrast, starts this session hopefully having learned a hard lesson as a result of personal income tax hikes of 66 percent and corporate tax hikes of 46 percent last year.

This dramatic hike in income taxes failed to solve Illinois’ problems, despite all the promises from Illinois Governor Pat Quinn and progressives running the state of Illinois. The state’s complete and utter fiscal irresponsibility, opposition to pro-growth policies, and continued increases in taxpayer burdens will no doubt continue to drive people from the state. The exodus is no surprise given Illinoisans’ current dissatisfaction with their increased shared sacrifice.

Governor Quinn’s first budget since the tax hikes provides a very instructive lesson. Absent from his budget is a recommendation for more personal and corporate income tax hikes. Governor Quinn seems to recognize that last year’s tax hikes did not meet their intended goal to close the spending/revenue gap and pay off the billions of dollars in unpaid operating bills. Once again, the promised returns for tax increases fall short. Also noteworthy is the downgrading of Illinois’ credit rating, even though it can easily raise revenue. Progressives and tax-user advocates in Oklahoma and across the country argue that state personal income tax rates don’t matter. But it seems from observing Governor Quinn and Illinois that state personal income tax rates do matter. If state personal income taxes did not matter, it seems Governor Quinn and the progressive leadership in Illinois (with sizeable majorities) would increase state personal income taxes even more.

While progressives and tax-user advocates have been successful in opposing pro-growth policies in Illinois, the good news for Oklahomans is that Oklahoma is building on a decade of adopting pro-growth policies such as Right to Work, repealing the death tax, and cutting the personal income tax rate by more than 20 percent.

Incentives matter because people respond to incentives. Let’s hope Oklahoma policymakers continue to observe and learn from the lessons of Illinois, England and France, continuing to adopt pro-growth policies like phasing out the state’s personal income tax.