Illinois Governor Pat Quinn has signed into law a big increase in his state's income tax. The individual rate jumps from 3% to 5%, while the business rate rises from 4.8% to 7%. Illinois faces a budget deficit, just as South Dakota does, and they're recognizing the practical fact that you can't just cut your way to a balanced budget; sometimes, there are services that you just have to pay more for.
Last night on South Dakota Public Television, Governor Dennis Daugaard said he'd be contacting businesses in Illinois and encouraging them to save on taxes by moving to South Dakota. (Governor Daugaard also said the s at the end if Illinois, which is beside the point but makes me smile.)
Governor Daugaard will have to get in line. The Republican governor of Wisonsin, Scott Walker, has already unveiled an ad campaign to lure tax-averse Illinoisians north to Cheeseland. "Escape to Wisconsin!" says Governor Walker. (No word on whether they can get Kurt Russell to do a Snake Pliskin voice-over on the Chicago drive-time radio ads.) Indiana's Republican Governor Mitch Daniels is making similar noise.
Don't sweat the competition, Denny: corporate tax rates are still higher in Indiana than in Illinois, and even with the new rates in Illinois, Wisconsin still hits businesses and many individuals with higher rates. Governor Walker will have to carry through a promise to lower taxes in his legislature; South Dakota's already there, with no personal or corporate income tax.
But this assumes that lower taxes really are effective at luring businesses:
The notion that low corporate tax rates lure business is antiquated, say most analysts. Taxes pay for improved education systems, transportation, and other services that are important to businesses. Rather, what is important is a full picture of a state's financial health &ndash and that is how both states are trying to sell Illinois businesses on a move [Mark Guarino, "Illinois Tax Hike: Will Businesses Flee to Wisconsin?" Christian Science Monitor, 2011.01.13].
Focus on fixing the deficit, Governor Daugaard. Do that, even with a tax increase here and there to maintain services, and you still come out ahead in the business recruitment game.
And I still wonder: if we build our economic development strategy entirely on recruiting people who are so anti-tax that they will uproot their families and businesses just to get a lower rate, don't we run the risk of creating a more selfish, less community-minded population that tends to leave when times get tough?
* * *
Update 09:03 CST: Wisconsin is a little too anti-tax in Minnesota's eyes. Governor Mark Dayton is sending a letter to Governor Walker telling him to pay $58 million Wisconsin owes Minnesota in a tax reciprocity deal.