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 Its products are out-of-date, its credit is in the tank and trust in management has disappeared.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
Appendix 1
Appendix 2
Appendix 3
A set of state lawmakers want to extend CPS’ current school closing moratorium to February 1, 2027 – the same year CPS is set to transition to a fully-elected school board. That means schools like Manley High School, with capacity for more than 1,000 students but enrollment of just 78, can’t be closed for anther three years. The school spends $45,000 per student, but just 2.4% of students read at grade level.
Hopefully, all media will get the message, in Illinois, too.
Ted joined Tom Miller of WJPF to talk about Illinois’ highest-in-the-nation property taxes, why lawmakers don’t want to touch the tax’s cost drivers, just how much Illinoisans’ tax burden has grown over the decades, why Gov. Pritzker failed to meet his promise to reform property taxes, and more.
If Sears could raise their prices and only lose a small percentage of their customer base while drastically increasing their revenue…They would do it in a heartbeat. Illinois taxpayers don’t use the same decision tree as they do when making purchases. To switch retailers requires little to no effort on their part. To move to a different state requires decisions that impact family, financial, career, friends, etc… The state raised taxes 67% a few years back on only a very tiny percentage (no mass exodus) left the state. The state will continue to raise taxes instead of cutting spending because… Read more »
“If Sears could raise their prices and only lose a small percentage of their customer base while drastically increasing their revenue…They would do it in a heartbeat.” And I can also wish for fairy dust and unicorns to brew the perfect ale. But that’s not how the world works. “The state raised taxes 67% a few years back on only a very tiny percentage (no mass exodus) left the state. ” That ‘very tiny percentage’ just so happens to be the largest of any state in the union, so if that is your metric to judge success, it’s a really… Read more »
“And I can also wish for fairy dust and unicorns to brew the perfect ale. But that’s not how the world works” Exactly. What’s the point of comparing a business decision with a government taxing decision? Taxes are raised because they believe they will get more revenue from the higher rates than what they will lose from taxpayers leaving the state. They also believe that voters will not punish them. When both of those beliefs converge you will always get higher taxes. “That ‘very tiny percentage’ just so happens to be the largest of any state in the union, so… Read more »
“Taxes are raised because they believe they will get more revenue from the higher rates than what they will lose from taxpayers leaving the state.” In most cases, the politician is worried about being reelected (Toddler Stroger in Cook County, IL), not about residents leaving the jurisdiction entirely. Only in IL’s case (and maybe NY too) do the politicians consider raising taxes vs. residents actually leaving because of the tax increase. That alone tells you something, that they are playing with fire. https://www.investors.com/politics/editorials/cuomos-budget-rich-high-taxes/ “I don’t believe raising taxes on the rich,” [Gov. Andrew] Cuomo [of New York] said. “That would… Read more »
Illinois is like a Sears with no other stores within 150 miles. They know only a few customers are willing to drive 2 hours to shop at Target for clothing. So to make their apparel seem more upscale to their “loyal” customers, Sears adds the Kardashian Kollection.
Exactly nixit. Their customers complain about the high prices but 99% still shop at the store. They then go home and type on message boards about how the prices are too high and management should be fired or arrested for the high prices. The employees of the local Sears are happy because they have better pay and benefits compared to the target 2 hours away. The businesses that sell their goods and service to the overpriced Sears are also willing to overlook the stores delays in payment because ultimately they won’t survive if Sears stops purchasing their product.
Sears is Eddie Lambert’s personal looting operation. He has stripped every asset and illegally screwed over creditors to make more than a billion dollars for himself on his bet. Sears is smouldering to the ground and yet the only man standing is the guy who orchestrated it all. Unfortunately for Illinois, the pensioners will not be the last man standing, and hopefully Madigan and the architects of the collapse ultimately end up in federal prison. The looting is coming to an end, and there will be a serious price to pay. And then the voters of Illinois will “vote blue… Read more »
Jay Bob is doing his very best, in these trying times. ???
Raise Taxes and there will be a mass exodus to Florida (Zero tax state).
Come join all the Greedy cops, teachers and firemen living the life of luxury and laughing all the way to the bank.
Feel like you are being screwed? It is because you are.
Good analogy. Would you recommend remaining a loyal Sears customer or finding another retailer with better service and prices?
Another example would be Jabba trying to lose weight by eating even more food. No dieting, no changing nutritional habits, no changing underlying reasons for overeating. He just said he was going to lose weight by eating more Big Macs.
What? You mean that diet doesn’t work? Well that explains a lot.