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 The 2010s were a lost decade for the Land of Lincoln, which
shed more people than any other state in the nation.
Data released by the U.S. Census Bureau Dec. 30 show Illinois’ population
dropped by 168,700 people from 2010-2019, the largest raw decline of any state
and more than the entire population of Naperville, Illinois’ third-largest city.
In percentage terms, this drop was second only to beleaguered
West Virginia during the decade. That population decline,
especially the loss of prime working-age adults, causes serious economic harm
for Illinoisans who remain in the state.
If Illinois had simply kept pace with the average state population growth since
the start of the Great Recession in 2007, when Illinois’ labor force was at its
peak, the state’s population would be 1.14 million residents, or 9%, larger than
it is today. This increase in population would yield an economy that is at least
an estimated $78 billion larger than today, equivalent to the entire state
economy of Delaware.
It would also pad state coffers without tax hikes, increasing Illinois’ General
Revenue Fund by an estimated $3.45 billion, compared with today.
That’s more than the generous estimate of $3.4 billion in new revenue Gov. J.B.
Pritzker predicts his controversial progressive state income tax hike would
generate. Illinois voters will decide the fate of Pritzker’s plan at the ballot
box Nov. 3, 2020.
Population decline continues in 2019
From July 2018 to July 2019, Illinois’ population shrank by 51,250, the
second-largest raw decline in the nation behind New York and the third largest
in percentage terms behind West Virginia and Alaska, according the Census
Bureau.
The largest driver of Illinois’ population decline? More people are leaving for
other states than arriving from other states. During the year, Illinois lost
104,986 people on net to other states, or roughly 288 residents per day. That’s
one person every 5 minutes.
Population decline reached record levels in 2018, the year after the Illinois
General Assembly passed the largest permanent income tax hike in state history,
while population decline in the second year of the tax increase continued at a
faster rate than before the tax increase. This result comes as no surprise as
the 2017 tax hike has likely deterred new investment and job creation, making
Illinois a less promising state in which to find opportunity.
This was Illinois 6th consecutive year of population decline. Among all 50
states, only West Virginia has experienced more consecutive years of population
decline with seven. Since Illinois’ population decline began in
2014, the state has shrunk by more than 223,000 people. That’s equivalent to
losing the entire city of Aurora, Illinois’ second-largest city.
Unfortunately, Illinois’ population decline was the result of losing residents
to other states at the fourth-fastest rate this year.
From 2010-2019, Illinois lost 852,544 residents to other states on net. As a
share of each state’s population, that was the third-fastest rate of
outmigration in the nation, behind Alaska and New York.
Prior analysis has revealed that the largest segment of Illinoisans leaving the
state are prime working-age individuals. While those leaving the state are
obviously doing so to seek greener pastures, it is important to consider what
population decline and outmigration mean for those who remain.
Effects of population decline on those who stay
A poll conducted late last year by NPR Illinois and the University of Illinois
Springfield revealed the No. 1 reason Illinois say they want to leave is taxes.
However, taxes become a growing concern for Illinoisans who stay with each
person who leaves.
Population decline, and more specifically the decline in the prime working-age
labor force, has serious negative implications for the state’s economy and the
growth in state tax revenue needed to pay for current liabilities. As the
population shrinks, so too does the potential tax base. Unfortunately, many of
Illinois’ costs, such as pension liabilities, are fixed costs that exist
independently of population trends, meaning that despite fewer taxpayers, the
size of many liabilities won’t shrink.
If Illinois had kept pace with average state population growth since the start
of the Great Recession, it would generate $3.45 billion more in state tax
revenue annually.
That’s more than the $3.4 billion in new revenue Gov. J.B. Pritzker’s
controversial graduated state income tax hike is claimed to generate.
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If the state had simply grown at the
same rate as the national average, the Land of Lincoln would have
seen population growth and nearly 1.14 million more residents – 9%
more than it has today. This population growth would also be the
equivalent of at least an estimated $78 billion in additional
economic activity in the state. That’s equivalent to the size of the
Bloomington, Carbondale-Marion, Champaign-Urbana, Danville, Decatur,
Kankakee, Rockford, and Springfield economies combined.
It would also follow that the state’s
General Revenue Funds would have seen a corresponding increase,
yielding an estimated $3.45 billion more in state revenue than the
state brought in during fiscal year 2019.
Unfortunately, lawmakers have failed to take steps to make the state
a more attractive place for businesses and families to locate. They
can still fix the problem by introducing policies that handle
Illinois’ high debt, high taxes and a shrinking population.
A reduction in the number of taxpayers without a similar reduction
in costs for state government has only meant one thing: higher taxes
for those who remain. Without reform to state spending or a
practical solution to the state’s massive pension debt, lawmakers
will continue to burden Illinoisans with massive tax hikes. The most
recent proposal has been the push for scrapping the state’s
constitutionally protected flat income tax for a $3.4 billion
progressive income tax hike. However, in the eight years since the
“temporary” income tax hike of 2011, outmigration has continued and
state finances have deteriorated.
The Land of Lincoln is now in even worse fiscal condition and
saddled with more debt than ever before. And it is clear that
pursuing further tax hikes won’t solve Illinois’ problems. Making
matters even worse is that the revenue projections for a progressive
income tax didn’t account for the decline in population that the new
census data just revealed, meaning the amount of revenue that has
been promised is likely an overstatement.
Instead of pursuing the same tax hike policies that have failed to
fix state finances while driving thousands of jobs and opportunities
away from the state, likely exacerbating the state’s people problem,
Illinois needs real reform.
Reversing the trend
In order to reverse population decline, Illinois needs to attract
and retain more residents. However, despite high taxes being the No.
1 reason Illinoisans want to flee the state, lawmakers are asking
Illinoisans to approve a $3.4 billion progressive income tax hike on
Nov. 3, 2020.
Removing Illinois’ constitutionally protected flat income tax would
not only hurt the economy and open the door for more tax hikes, but
would also likely drive more residents out of Illinois.
Progressive income tax states are hemorrhaging residents to more
competitive tax environments, losing more than 309,000 residents to
other states during the past year as a group. Meanwhile, states with
no income tax gained more than 371,000 residents. And taken
together, flat income tax states excluding Illinois also gained
residents from other states.
Instead of again asking taxpayers for more, lawmakers need to pursue
real reforms that would put the state on a firm fiscal footing and
give much needed certainty and tax relief to families and
businesses.
First, Illinois must address its pension problem, which continues to
grow despite two record income tax hikes within the past decade.
Though pensions take up more than 25% of general fund expenditures,
the pension funds are no more solvent. But by amending the Illinois
Constitution to allow for the adjustment of the growth rate of
not-yet-accrued benefits, the state can reduce pension debt and
ensure the plans can continue to support retirees without
overwhelming taxpayers. Such changes could include increasing the
retirement age for younger workers, tying annual benefit increases
to the actual cost of living and making retirement plans more
closely resemble 401(k)s for new workers.
Second, a spending cap could help the state meet Illinois’
constitutional balanced budget requirement, which has been ignored
for 18 years. One interesting proposal would be a smart spending cap
that ties government spending growth to Illinois’ total growth in
gross domestic product. Texas and Tennessee have implemented
something similar to this, and both have budget surpluses, no state
income tax and lower property tax rates than Illinois.
Responsible government spending growth that taxpayers can afford
would provide more stability for families and businesses. But if the
state substitutes tax hikes for necessary reforms, Illinois can
expect to continue seeing population declines as residents find
better opportunities elsewhere.
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