UPDATED: Wirepoints published a version of this article last year. We’ve updated it to reflect the new reality of the COVID-19 crisis.
By: Ted Dabrowski and John Klingner
Sears, once the “king of retailers,” is a shell of its former self. The Illinois-based company has been losing market share to its rivals for decades. Its products are out-of-date, its credit is in the tank and trust in management has disappeared. Sears’ customers have fled the once proud and iconic company.
So, imagine how ludicrous it would be if Sears announced a turnaround plan, right in the middle of the COVID-19 crisis, based on just one thing: price hikes. No operating reforms, no change in strategy, no improvement in products – just price hikes. For sure, if COVID-19 didn’t kill the company, that strategy would.
Such a strategy might sound absurd, but it’s precisely the approach Gov. J.B. Pritzker is pushing in Illinois.
The governor is shunning structural spending and pension reforms. He’s ignoring term limits, redistricting reform and real changes to lobbying rules. The only thing he wants to push is a multi-billion-dollar tax hike via a new progressive tax scheme.
It’s his version of a price hike and it’s his panacea for all of Illinois’ woes. It’s a foolish strategy that will only prove destructive to a state in steep decline.
Even before the Coronavirus hit, Illinois was already bleeding more residents than any other state in the country except New York (Appendix 1). Illinoisans were already burdened with the highest taxes in the nation, according to Kiplinger (Appendix 2). Property values, adjusted for inflation, were falling in Illinois, bucking the upward trend across the rest of the nation (Appendix 3). And corruption was rampant, as evidenced by the growing list of local and state officials indicted or under investigation.
No matter how it’s structured, a progressive tax scheme will only make each of those things worse – especially with the full impact of the COVID-19 crisis still in question.
A sad comparison
Sears dominated retail sales in the 20th century and was once the nation’s largest employer. “It was the Walmart and Amazon of its day, combined.”
But by the turn of the century, Sears began to fall behind. Products and management styles evolved and Sears failed to adapt as new competitors arose.
Other retailers upgraded their stores while Sears stores fell into disrepair. As a result, Sears lost customers, it shuttered locations and its debts continued to rise. The company has been in a downward spiral ever since.
Illinois has suffered a similar history.
In the middle of the 20th century, Illinois was a beacon of prosperity for people all over the world. Foreigners flocked here to achieve the American Dream, and other Americans came north during the Great Migration. Illinois’ population exploded and the state became a dual machine of agriculture and industry.
But Illinois, too, began to fall behind near the end of the century. While other states like Indiana and Wisconsin adapted to competition by implementing labor, spending and tax reforms, Illinois doubled down on its failed policies.
The major cracks began to show themselves in the early 2000s, and since then, Illinois has gone from beacon to basket case. Illinois is now a national outlier on almost every financial, economic and demographic factor you can think of.
The lesson for Illinoisans
The economic and financial landscape in Illinois has changed dramatically due to the COVID-19 crisis. Governments across the nation are looking for ways to lower taxes and ease the burden on residents and businesses alike.
Pritzker, however, continues to push for his progressive tax, refusing to remove the proposed tax amendment from the November ballot.
Expect hundreds of millions of dollars to be spent trying to convince residents to support or oppose a progressive income tax structure in Illinois. Illinoisans will vote on whether or not to replace the state’s flat tax with a structure that taxes higher incomes at ever-higher rates.
The airwaves will be bombarded with purely emotional campaigns full of misinformation. And you can bet you’ll hear “facts” that are entirely contradictory. You’ll be sick of both sides long before the actual vote.
So, what to do? At some point, you’ll have to block out all the noise and use common sense to figure out the reality of Illinois’ proposed progressive tax.
The questions you might ask yourself are: Will yet another tax hike stop the flight of hundreds of thousands of Illinoisans each year? Will a multi-billion dollar tax increase – and the expectation of more hikes – lead to lower taxes? Will more tax hikes lead to increases in home values? Will more tax dollars in the coffers of Illinois politicians lead to less corruption? Will higher taxes make it easier for businesses and entrepreneurs to recover from the impact of the Coronavirus?
The clear answer to all those questions is no.
Politicians will blame COVID-19 for Illinois’ fiscal problems (see Sen. Don Harmon’s bailout letter), but the virus was only acted as an accelerant to the state’s collapsing finances.
The only successful path for Illinois out of this crisis is for the state to pass the reforms it should have enacted years ago. Tax hikes and bailouts won’t fix anything.
The bottom line is, Illinois needs to adapt to succeed. Sears shows what happens when you don’t.
Read more about Illinois’s fiscal crisis and the progressive tax:
- Illinois Senate Democrats Seek Massive Federal Bailout for State, Going Far Beyond Coronavirus Impact
- Why Illinois Property Taxes Won’t Drop Without Major Spending Reform
- Pritzker’s progressive tax push: A guide for the ordinary Illinoisan
- What Pritzker’s progressive tax rates will probably look like
- Governor of Illinois, home of nation’s worst fiscal crisis, slams door on pension reform
- Wirepoints COVID-19 Impact page