Taxation 101: Incentives Matter - and the Proposed Illinois

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Incentives matter. That’s Economics 101, a course which many — most — politicians would do well to take. Alas, most politicians are economic illiterates, even some who supposedly have degrees in Economics from places like, oh, Boston University, just to name one completely at random.

Illinois liberals could also use some education in economics — and incentives. They are proposing a “millionaire’s tax” and floating a non-binding ballot initiative to push the idea. While the ballot measure can’t implement any such tax, if this is approved, the Democrat-dominated legislature will no doubt see it as a license to proceed.

One Illinois Republican, State Representative Martin McLaughlin, is standing on the tracks, one hand raised, shouting “STOP!”

With some Illinois homeowners facing continued property tax hikes, a plan that has the public support of former Gov. Pat Quinn is being sold as a measure that could mean as much as $4.5 billion in such relief.

State Rep. Martin McLaughlin, R-Barrington Hills, argues those numbers simply don’t add up.

“It’ll be another example of how the super-majority doesn’t understand what’s necessary for entrepreneurs to thrive in Illinois,” he told The Center Square. “My Democrat friends create all kinds of deserts through bad policy. If we create this policy, it’ll create small business and mid-size business deserts. We need climate change; we need to change the business climate in Illinois.”

The nonbinding measure poses the question: “Should the Illinois Constitution be amended to create an additional 3% tax on income greater than $1,000,000 for the purpose of dedicating funds raised to property tax relief?” Supporters say it opens the door for voters to have their first real chance of affecting the kind of property tax change many profess to crave.

Chicago is, of course, the major hub of commerce in Illinois, and a big portion of the wealthy folks who would be affected by any tax like this very likely live in the Chicago metro area. And, of course, a quick look at a map tells us that Indiana and Wisconsin are each a hop and a skip from Chicago; even one charge on an electric vehicle will get you from Chicago to South Bend or Madison. And that is very likely where a lot of these millionaires will be headed — because incentives matter. Mr. McLaughlin gets it, even if Chicago-area Democrats don’t.

McLaughlin views it as a losing proposition for all those involved.

“All it’s really going to do in the long term is push future employers out of the state of Illinois, business owners and entrepreneurs who in many instances are the ones that have taken the risk and built,” he said. “Businesses hire people. Those are the guys that they’re going after. So, it’s a success tax.”

Ay, there’s the rub.

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I’ll lay another law of economics on you: What you tax, you get less of; what you subsidize, you get more of. The Democratic Party’s entire economic platform for the last half-century or so has been “punish success, reward failure,” and if it’s the end-state of those policies you’re looking for, then you need look no farther than Newark, Detroit — or Chicago. And this measure, should it be approved and then rammed through by the legislature, will simply make Chicago and Illinois millionaires looking for greener pastures.

But then, Illinois has been making the business climate as unfriendly as possible for some time already. I mean, who do they think they are — California?

As the saying goes, “You can lead a horse to water, but you know he’ll make a mess.” Illinois Democrats’ economic knowledge appears to have been issued from the south end of a northbound horse, and should this measure pass the voters and the legislature manage to ram it through, it will make a mess of Illinois’ budget.

At least Martin McLaughlin will have the satisfaction of saying, “I told you so.”