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 Illinois’ people problem is worsening. And it’s driven by
residents leaving for greener pastures.
From July 2017 to July 2018, Illinois’ population shrank by more than 45,000
people, behind only New York for the worst raw population decline in the nation,
according to data released Dec. 19 by the U.S. Census Bureau.
The largest driver of Illinois’ population decline? More people are leaving for
other states than arriving from other states. Over the year, Illinois lost
114,000 people on net to other states, or roughly 313 residents per day.
Clearly, state lawmakers’ passing a record-breaking permanent income tax hike in
July 2017 hasn’t helped matters. This policy has deterred new investment and job
creation, making Illinois a less promising state in which to find opportunity.
This was Illinois’ fifth straight year of worsening population decline. Among
all 50 states, only West Virginia has seen more consecutive years of population
decline, with six.
Since Illinois’ population decline began in 2014, the state has shrunk by more
than 157,000 people. That’s equivalent to losing the entire city of Joliet,
Naperville or Rockford. Those are the third-, fourth- and fifth- largest cities
in the state, respectively. Illinois’ change in population since 2010 is the
worst of any state in the nation, in raw terms.
Unfortunately, Illinois lost residents to other states at the third-fastest rate
in the nation over the year.
This glaring problem raises three crucial questions for state lawmakers: Who’s
leaving? Why are they leaving? And what can leaders do to fix it?
Who’s leaving?
The primary driver of Illinois’ outmigration crisis is prime working-age
residents (ages 25-54) seeking opportunity.
An analysis of the most recent government data reveal migrants tend to be more
highly educated than non-migrants, and that the state’s people problem has led
to a shrinking of both the skilled and unskilled population in the state. This
is a bad sign for Illinois’ already weak labor market.
Those college-educated migrants who leave the state tend to make 14 percent more
in wages and salaries than non-migrants and 18 percent more than the migrants
moving into the state. This signals that Illinois is continuing to experience
significant wealth flight.
The data also reveal Illinois is shedding migrants who are in the labor force
and seeking a job, while attracting migrants who are less likely to be labor
force participants.
Why are they leaving?
When analyzing Illinois’ people problem, it’s important to understand why people
move.
Yes, warmer states have been attracting more people, especially retirees, as
America’s population continues aging. But people also move because of taxes and
labor market conditions. And Illinois’ population decline is driven primarily by
prime working-age Illinoisans, not retirees.
The most important factor in Illinois’ migration problem is the labor market,
which has been crushed by the state’s unfriendly tax policy and business
climate.
Following the methods of Federal Reserve economist Joshua Gallin (2004), which
take into account the effects of climate, age and labor market conditions on
migration decisions, IRS data reveal Illinois’ poor labor market has been the
primary driver of outmigration since 2006, accounting for 57 percent of
Illinois’ net migration losses to other states (see Appendix A).
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The state’s lackluster economy is directly responsible for the loss of most
migrants in the past decade. In other words, had the state fostered a healthy
labor market, Illinois’ population would have continued to grow in 2014 and 2015
instead of experiencing persistent declines.
Unfortunately, the state’s shrinking may get even worse, as the 2017 tax hike
will continue to have harmful effects on the Illinois economy. By costing the
state thousands of jobs and billions of dollars in economic activity, the recent
tax hike made the state less attractive for families looking to plant roots.
State lawmakers cannot continue to rely on tax hikes if they want families to
bet on Illinois.
Reversing the trend
Illinois state lawmakers have the opportunity to put the state on a path toward
a more prosperous future through policy reform. But what kind of reform should a
shrinking state pursue?
One clear mistake, given the state’s people problem, would be scrapping
Illinois’ constitutionally protected flat income tax.
Progressive income tax states are hemorrhaging residents to more competitive tax
environments, losing nearly 300,000 residents to other states over the past year
as a group. Meanwhile, states with no income tax gained more than 300,000
residents. And taken together, flat income tax states excluding Illinois also
gained residents from other states.
Instead of looking to a progressive income tax for increased revenue, Gov.-elect
J.B. Pritzker should look at the true cost drivers of state government in 2019.
If Illinois is to reverse recent trends and foster population growth within the
state, it must address the root causes of its migration problem: an unfriendly
business environment that discourages investment and job creation, and punishes
residents with high taxes.
Instead of continuously hiking taxes, state lawmakers need to free Illinoisans
from their enormous tax burden. A lower tax burden would stimulate investment
and job creation, making the state a more attractive place for families and
businesses to plant roots.
The only way to get lower taxes – and more tax certainty – is to rein in
government spending at the state and local levels. A spending cap could provide
certainty about future government spending and help lawmakers avoid tax hikes to
balance the budget.
Pension obligations are one of the largest cost drivers of government spending
and now eat up more than a quarter of the state budget, meaning Illinoisans are
paying more and getting less. Despite paying billions of dollars a year into the
state retirement systems, these funds are becoming less solvent over time, as
returns on investment are frequently below their projected targets and 3 percent
compounding benefit increases outpace inflation.
An amendment to the Illinois Constitution that protects current earned benefits,
but allows for a slower growth in accrual of future benefits – such as a true
cost of living adjustment tied to inflation – would help to reduce the state’s
$130 billion pension debt that taxpayers are on the hook for.
Without addressing the necessary spending reforms the state so desperately
needs, Illinois will likely continue to shrink.
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