Illinois and the city of Chicago are a fiscal mess. So is Cook County. So are plenty of other cities and counties in Illinois. The reason, public pensions.
To be clear, my favorite solution to the crisis would be to change the pensions from defined benefit to defined contribution. I’d do a discounted cash flow analysis and give pensioners a lump sum today and convert. Any new employees would go into the new program. Each employee would be responsible for investing their own money.
Chicago is a world class city. It’s beautiful. People I talk to don’t want to leave. But, most of the people I know are trying to figure out a way to design their life so they can spend time in Chicago, but avoid the menace of its finances. Many I know have already left for Florida, Texas, Arizona, Colorado and Indiana.
The Chicago startup community is growing. It’s attracting people from all over. There are a lot of great startups being built here.
In the past week, Democrats have proposed a new income tax. The current tax rate in Illinois is 3.75%. They raised it to 5% for a while, and were supposed to close deficits with it but they didn’t. The new proposal is a soak the rich proposal,
3.5 percent for income of $200,000 or less; 3.75 percent on income between $200,000 and $750,000; 8.75 percent on income between $750,000 and $1.5 million; and 9.75 percent on income over $1.5 million
One of the great things about America is that each state becomes a little science experiment for public policy. In this case, I say do it. More millionaires left Chicago than any other American city last year. Let’s see what happens if they pass a targeted tax increase on them. Wealth managers are advising wealthy people to get out of Illinois. Munibond traders are not buying Illinois municipal bonds. Gurtin Fixed Income says stay away from Illinois and Puerto Rico.
It’s not just the wealthy that are leaving. The middle class is leaving Illinois. Especially the African-American middle class. I am sure this tax proposal will have no effect.
State Senator John Cullerton wants to tax every Illinois car a minimum of $450. He is ticked that electric cars like the Prius conserve fossil fuels and don’t pollute. The move would also create a new bureaucratic committee who’s members will be nominated and approved by insiders. Illinois should do this! Let’s see what happens.
The Chicago Political Economy Group has advocated for transaction taxes. Chicago is home to the largest exchanges in the world, and the largest high frequency trading firms. I have written about transaction taxes in the past-but in this case I think they should just pull the trigger and do it. Let’s see what happens. If the advocates are right, budget holes will be filled and there will be no effect on the industry.
Hard left political writer Greg Hinz has postulated that the wealthy should pay more in property tax than the less wealthy. He has complained that Chicago’s property taxes are low compared to the suburbs. Chicago passed a $500 billion dollar tax hike, is considering another and it’s still nowhere near enough revenue to cover pension and budget shortfalls. Instead of passing a blanket tax hike, maybe they should target wealthier neighborhoods on the north, west (West Loop), and south side (Hyde Park) and increase only those homeowner taxes.
Democrats have gerrymandered a supermajority in the House and Senate. Pass the tax increases and override the governor’s veto. Pass a budget, override the governor’s veto. Own it. In this day and age, everyone knows the two parties aren’t capable of cooperating since they fundamentally view the world differently.
Chicago Teachers are going to strike in 30 days. They don’t care. They know who is in their back pocket and who isn’t. No doubt, they had back room meetings before the announcement. No doubt they will do it. If you have a child, don’t fear. In the interim, just use Dabble Kids to expose your child to things. Look on the bright side. There is massive innovation in the way we educate our kids coming.
Instead of all these Kim Jong-Un proclamations and idle threats, Illinois should get on with the experiment. Let’s see what happens. We have known for over ten years that the financial path we were on was unsustainable. We have heard for years from one segment of economists that a higher minimum wage and higher taxes don’t decrease economic activity. Since the money is being redistributed, there is no change. Let’s see if they are right.
Because if it doesn’t work, it’s just as easy to repeal the policy, right?