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How tax increases will affect state

Updated: September 24, 2012 6:25AM

Elections have consequences. You Illinois taxpayers who are outraged over the reduced paychecks you’ll soon see should remember that more than half of you voted for Gov. Quinn, and he campaigned to raise your taxes.

True, you got more than you bargained for. But saying yes on taxes to a politician is throwing the candy store door open. And Quinn, supported by House Speaker Michael Madigan and Senate President John Cullerton, shot in like a chocoholic.

And tax increases have consequences, especially big ones that raise the personal income tax 67 percent and jump the corporate tax rate to 7 percent from 4.8 percent — well, actually 9.5 percent when you throw in the property replacement tax corporations pay.

Overnight, Illinois dropped from 23rd in the nation to 36th in the business tax climate index by the nonpartisan Tax Foundation. “The new corporate tax hikes will give the state the third highest rates in the country,” the foundation says.

Quinn cavalierly brushed aside suggestions the tax increases will drive businesses out of Illinois — “that’s not going to happen.” It’s true that taxes aren’t the only factor in executive-suite decisions, but they are a big one. And Illinois doesn’t need to encourage trends that have sent strong population growth and jobs elsewhere, principally to states with lower taxes, less regulation and fewer unions.

Those trends are reflected in a study by the Illinois Policy Institute that finds that more people left Illinois than migrated in between 1991 and 2009, with taxes, especially the estate tax, unions and weather driving the shift. The state lost a net of more than 1.2 million residents to other states. The favorite destinations were Florida, Indiana, Wisconsin, Arizona and Texas. It’s noteworthy that only Wisconsin now has a worse rating on the business climate index, and it has a new governor dedicated to cutting taxes.

By the institute’s calculations, net out-migration between 1995 and 2007 resulted in compounded net income losses of $163.6 billion, costing state and local governments $16.9 billion in tax revenues.

Quinn argues that the tax increases improve business and investment prospects by pulling the state from the brink of insolvency. More likely, executives and investors will conclude that the Democratic leadership will respond to fiscal problems by increasing taxes rather than making the tough decisions to cut spending, reform tax and regulatory impediments to business and challenge public employee unions.

The Democrats agreed to cap spending increases at 2 percent a year, but I suspect the wily lawmakers in Springfield can find a way around that. And no one should believe these tax increases will be temporary. Once the Legislature gets used to the higher revenues, it will always find ways to spend them.

Supporters of the tax increases say they will create jobs. It will be interesting to see how taking $7 billion each year from families, investors and businesses will generate private-sector jobs.

Not one Republican voted for the tax increases. Realizing that stronger GOP numbers in the next Legislature would block tax increases without fundamental fiscal reforms, Democrats powered them through a lame-duck session, meaning at least a dozen either defeated or retiring Democrats not answerable to voters made this happen. It’s increasingly clear that lame-duck sessions unfettered to the will of the voters are an abuse of democracy.

One last question: Will voter outrage make this a Todd Stroger moment for Quinn? Perhaps one person central to the tax saga wouldn’t mind if that happened. One way to look at this is that Madigan got a twofer: tax increases to avoid spending cuts unpopular with Democratic constituencies, and possibly voter anger leaving Quinn a weak candidate in 2014 when his daughter, Attorney General Lisa Madigan, might run for governor.

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