Wednesday, January 12, 2011

Illinois Tax Increase

According to the Wall Street Journal, in order to close a $13 billion deficit, the Illinois House of Representatives today increased personal income tax from 3% to 5% and the corporate rate from 4.8% to 7%.  Spending growth is capped at 2% annually.  The measure is expectd to pass the Senate and signed into law by the governor. 

Setting aside discussion of the fiscal exigencies and managerial shortcomings that led to this, it would be interesting to observe the resulting change in gross state product a year from now, in comparison to Virignia and New Jersey which took the opposite route of reducing government spending while keeping taxes static.  Such natural experiments are occuring all over the country. My guess is a faster recovery for Virginia and New Jersey while Illinois experiences a hollowing out of the middle class as mid-sized companies and entrepreneurs move out of state.

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