Wyoming Liberty Group
What Can Illinois Teach Wyoming about Tax Competition?
I had the dubious “privilege” of growing up in Sweden, infamous for having the world’s highest taxes. I actually knew people who sincerely said, after they got a raise, that “I’m so happy I make more money – now I can pay more taxes”. It is very hard to find people who would seriously say the same thing here in America, especially here in Wyoming. Even the most ardent American liberals know that taxes actually destroy entrepreneurial incentives and reduce economic activity. Illinois Governor Pat Quinn is a good example. As I explained elsewhere earlier this month, Sears and the Chicago Mercantile Exchange (CME) have been threatening to leave the tax hell that Governor Quinn presides over. Now the Chicago Sun Times reports that the governor has recognized that high taxes are indeed a problem in Illinois:
Gov. Pat Quinn on Friday signed tax-break legislation designed to keep Sears and the Chicago Mercantile Exchange from leaving the state. … Sears and CME threatened to leave the state without the measures lawmakers adopted this week. The bill renews a credit Sears has been getting for years and guarantees the company a $15 million break on its taxes over the next decade, while retooling tax calculations for the profitable CME by changing how much of its business is subject to state income taxes.
This is effectively an admission by Governor Quinn that tax competition works. Illinois is already losing productive citizens to low-tax states, and has been doing so for some time. A telling example: according to U.S. Census Bureau state-to-state migration data, in 2009 Wyoming had a five-to-one migration surplus with Illinois: five times more people moved here from the Prairie State than moved in the opposite direction.
When the Illinois governor signed the extension of the tax breaks for Sears and CME, he conceded that common sense and good economic analysis had trumped statism and big-government ideology. This lesson is important to learn for Governor Quinn, whose state has been on the wrong track for a long time. According to the Tax Foundation, in 1999 Illinois had the 28th highest taxes in the country. In 2009 it ranked 13th.
But there is also a lesson to be learned here for Wyoming legislators and Governor Mead. If Sears and CME – or any other business in Illinois, large or small – would have chosen to leave that state, would they have come here? The answer to that question is not as obvious as one might think. While we do attract productive citizens from high-tax states, our ability to do so is in jeopardy. According to the Tax Foundation we still have a business-friendly tax climate, but we have lost our long-held status as number one. In 2010 we ranked second and in 2011 we ranked third. This is not a dramatic loss, but it is an indication that our state may be losing one of its strong points in competition for businesses and entrepreneurial talent.
One of the states that is now ahead of us is South Dakota, whose economy is growing more strongly and with more stability than ours. That is important, especially for upstart businesses.
Another, more serious indicator that we are on the wrong track in Wyoming is the latest CNBC business climate ranking. Our overall business climate ranking is an unimpressive 21st, and in terms of the cost of doing business, we are now ranked 34th in the country – the bottom third! We also rank very poorly in access to capital (35th), infrastructure (38th) and technology and innovation (dead last).
We may not be losing businesses yet to other states, and it is extremely unlikely that we will ever become the Illinois of the west. But it is a grave mistake for our lawmakers and our governor to rest on their laurels. When high-tax states lose their businesses and their productive citizens, we want to make sure that Wyoming is at the top of their list of destinations. For that to happen, our elected officials must stop the erosion of our business climate.