March 21, 2014 By: Mark Glennon
How much of the new revenue that would come from higher taxes on Illinois’ rich would be cancelled out because they leave or change their residence? While anecdotal evidence is overwhelming, don’t expect your lawmakers to have the most obvious empirical data they should have to answer.
House Speaker Michael Madigan yesterday proposed a referendum to authorize a 3% surcharge on incomes over $1 million, which he claims will raise $1 billion per year. More generally, progressives in Illinois want a graduated income tax placing a higher burden on the rich.
Astonishingly, nobody in Illinois government has attempted to determine how many of the rich are already fleeing, or whether that flight accelerated after the 2010 ‘temporary’ income tax increase. That information would be key to any valid prediction of the yield on new taxes on the rich, but Illinois has has no data, no study, no clue — even though the most useful data would be easy to collect.
Here’s what we should have, but don’t: A study based on IRS tax returns showing how many of the rich are moving to other states, how that’s trending, how it compares to to other states, and how it was affected by the 2010 tax increase. IRS data is often anonymized and made available for other studies, down to the level of counties and zip codes, in great detail respecting income levels. It should be a simple matter to do a study looking at how many of the rich changed their residence to another state, where they go, trends, etc. I would be surprised it the IRS couldn’t produce basic numbers in minutes. Studies like this on other states have been done in past years using IRS data, like this one on New Jersey going up to 2008.
Easy for the IRS to provide the data if it wanted to, that is, or if a state like Illinois pushed to get it. But the IRS is dragging its feet, batching the data for release on a lagged basis every several years. I’ve tried to get the data myself, and talked to a major research organization who has come to the same conclusion. Speculation about why is too easy.
Illinois lawmakers aren’t interested in knowing the facts, either. Ask them. I’ve asked quite a few. Most are quick to dismiss the anecdotal evidence of flight from the state, but they all admit the state has no data and isn’t trying to get any. If they wanted real answers they could surely get the data from the IRS. This issue is critical to all states, not just Illinois, and somebody just needs to raise a stink about it to get it.
We’ve been saying Illinois is driving blind on this question for a year and half, in articles here and here. In the meantime, the anecdotal evidence that the biggest taxpayers are fleeing mounts. Ask tax preparers who do work for the rich. Collect some nominating petitions in swanky Kenilworth and see how many folks say they’ve changed residence to their second home. Through my work I often talk to some major angel investors who provide essential funding for the startup community. I’m talking here about very big taxpayers — folks who have a couple other homes anyway, to which they can change their residence. Among them this topic is common conversation and they confirm that flight is rampant.
In talking to one of those heavy-hitter angel investors about this recently, he said “there’s an app for that, you know.” What?” I asked. “Sure,” he explained. It uses the fingerprint ID and geo-location on your phone to confirm that you’re in the state of your claimed residence for 50% of your time. That, and a change in your voting and drivers license, is commonly seen as all it takes to avoid Illinois taxes. In fairness, I wasn’t able to find that app, but still….