Illinois' high taxes, government scope dampen economic outlook

[April 10, 2024]  By Catrina Petersen | The Center Square

(The Center Square) – Illinois ranks among the worst states in the nation for economic outlook and its high tax burden continues to drive residents out of the state, according to a new report.

Jonathan Williams, a co-author of the American Legislative Exchange Council report, said in the last Rich States, Poor States report the group did, Illinois ranked 46th. Now, Illinois ranks 48th in the nation for economic outlook.

"Between the tax rates not going down and keeping up with the tax-cutting revolution that’s happening across the country as well as the size and scope of government growing relative to the loss of population can explain that loss [in rank] this year,” Williams said.

Legislators look for the report every year, Williams said. ALEC has authored 17 Rich States, Poor States reports.

"The data speaks for itself, the proof is in the pudding. The states that are ranked well in Rich States, Poor States perennially have been the fastest growing, turnaround states in the country,” said Williams. “Utah has been No. 1 in all 17 editions. When the Census numbers came out, it was no surprise to us and policy makers in Utah, that Utah was the fastest-growing state in America."

Utah has seen 20% population growth in that decade of Rich States, Poor States reports being published.

"These are things we know matter for economic growth,” said Williams.

Arthur Laffer, a co-author of the report, is an American economist and author who first gained prominence during the Reagan administration as a member of former President Ronald Reagan's economic policy team. Laffer has studied these policy factors for over 50 years.

“One reason state policy makers take this report so seriously versus many other rankings that are out there, the policies we measure in Rich States, Poor States are policies state legislators directly control,” said Williams. “They are things they can change. Outside of other ranking systems where they measure tourism or the weather.”

Ohio, Illinois’ neighbor, has improved since the last Rich States, Poor States report was done by ALEC. Ohio currently ranks middle of the pack, but that wasn’t always the case. According to Williams, Ohio is the top turnaround state.

Democratic gubernatorial candidate J.B. Pritzker aired a 2017 campaign ad touting the supposed unfairness of Illinois’ flat income tax.
Image from J.B. Pritzker's YouTube channel

“They’ve had different leadership and have cut taxes aggressively on personal income and other forms of taxes. Ohio is middle of the pack now after being nearly dead last in the first couple editions of Rich States, Poor States,” said Williams. “Ohio has been an out-migration state, not as acutely as Illinois is today, but that all came to an end this last year in the newest Census report where we have seen Ohio gain population. Americans will move from state to state and they don’t go to places they aren’t wanted. When you look at the policy environment and how Ohio has turned things around, and we’ve been projecting that in our rankings saying, ‘They are a turnaround state.' It’s great to see that validated by Americans now moving into Ohio.”

Williams said not even Illinois' constitutionally protected flat tax can save the state from a porous outlook.

"If you could imagine a scenario where Illinois’ ranking is poor in all these categories and then you add a progressive income tax of a high rate to that, I think that’s a recipe for absolute economic disaster for Illinois,” said Williams. “What if Illinois did not have a low-rate flat tax? Illinois would be in competition for dead last. One of the things that have drug down stakes like New York and California has been their overtly progressive income tax and high rates on high-income earners. That’s a driver of out-migration, especially wealthy individuals from those states.”

Gov. J.B. Pritzker proposed replacing Illinois' flat-rate income tax with one that taxes higher earners more. Voters shot that down in 2020.

California ranked above Illinois at 47th in the nation for economic outlook and behind Illinois were Vermont and New York.

"Illinois is obviously one of the biggest out-migration states in America. Now down almost 1.1 million people net over the last 10 years. In this net domestic out-migration, that so many people have seen firsthand, Illinois now relatively has a larger government as a percentage of its population,” said Williams.

ALEC was founded in Chicago in 1973. Back then, Henry Hyde, a Republican, was the majority leader for the Illinois House. He was one of the founders of ALEC.