By John F. Di Leo -
Reflections on doing business in Illinois in 2017…
The pundit class, and our cousins in the political class as well, have said and written much about the spate of new taxes, spending, and regulations in Illinois that have hit, and will continue to hit, in Chicago, in Cook County, and across Illinois this year.
First, the minimum wage was hiked… Illinois was already a dollar over the national minimum wage, so Cook County passed an ordinance to jump to $10/hour on July 1, 2017, then to increase by another dollar per year through 2020, when it would hit $13/hour… and in case that’s not enough, the County built in formulas so that it would continue to grow. Along with that, the county board added a costly paid-sick-leave mandate, a nice benefit for companies that can afford to offer it, a costly expense for companies that cannot.
Then the Cook County Board of Confiscators added a beverage tax, intended to kick in on July 1 as well, which would add anywhere from 30% to 70% (or sometimes even more) to the bottom line cost of most beverage purchases within the county’s borders (a judge, unusually shocked by the scattershot approach, put it on temporary hiatus to confirm the mess’ constitutionality).
Then on July 6, the state legislature overrode a gubernatorial veto, to raise the state’s income tax rates by another third. That’s a 32% increase in the personal tax rate, and a 33% increase in the corporate tax rate.
To use an analogy most familiar to people accustomed to the risks of walking through the crowded sidewalks or shopping centers of a busy place like Chicago, this is like being spun around in a crowd while one pickpocket lifts your wallet from your back pocket and another plucks your checkbook from your coat pocket, as their partner rips the gold chain from your neck and keys from your side pocket… and they’ve all disappeared into the crowd by the time you realize what’s happened.
The Promised Result
In foisting these wonders upon us, the powers that be in Cook County and Springfield, Illinois have promised that they would be worthwhile… because they would solve our problems.
The minimum wage increase will raise the pay of our hardworking citizens, enabling them to rise from poverty to the next class, protecting them from starvation and homelessness.
The beverage tax will enable Cook County to fund its critical expenditures – a court system, stretched by second, fifth, and tenth re-trials of people they’ve convicted and released to commit more crimes, again and again… and a county hospital system, stretched by admissions and readmissions of the knifing victims, shooting victims, and overdose victims of the gang shootings and drugs abuse that a Sanctuary City full of illegal aliens produce in such bulk.
And the Illinois state income tax should bring in another $5 billion per year, a wonderful windfall that will fund our pensions, pay our backlog of bills, and bring back participation in the multistate lotteries.
We are assured that the windfalls provided by these wonderful changes will prove the most dependable of problem-solvers, improving the lives of everyone in Cook County, no, everyone in Illinois, who benefits from the services provided by our local, township, county and state governments.
The Reality We Face
In truth, unfortunately, such tax increases rarely produce the kinds of windfalls that are promised, because the politicians who favor them forget that life is not static. In fact, people change their behaviors when governments act, and these different behaviors often result in greater unemployment, higher cost of government, and lower tax revenue.
We need only look at Philadelphia , which made the same mistake a year ago,to anticipate the effects of the penny-per-ounce beverage tax. Some of it is obvious, while some is much harder to measure:
- First, shoppers who have a choice – and most do – will move some or much of their shopping outside the county. People who formerly bought their 12-packs and 24-packs, and their 2 liter and gallon jugs, of sodas and lemonades, frappuchinos and sports drinks, at grocery stores and Walmarts in Cook County will shop instead in Lake, Kane, DuPage or Will, or even over the line in Indiana or Wisconsin.
- As people realize what an effect this tax has on their larger purchases, they will move ever more of their entertainment choices over the county line. Fast food and finer restaurants, movie theaters, anyplace one buys drinks; suddenly the non-Cook venues are more competitive, and Cook County’s sales tax revenue will diminish, just as the new beverage tax continues to underperform expectations.
- As this business is lost, the businesses that suffer will lay off staff and close down. Philadelphia saw the grocery business alone terminate many hundreds of employees, possibly thousands, as people took their grocery business to the suburbs. The same is sure to happen in Cook County. The collar counties’ boom will be Cook County’s demise, as thousands of Cook County cashiers, waiters, baggers and stocking positions are necessarily eliminated due to the plummeting store and restaurant sales.
- The result will therefore be not only a reduction in tax revenue below what was forecast, but an increase in the cost of government, as unemployment growth means expenditures will rise. Instead of those positions paying in through taxes, these newly jobless will be depending on the welfare state outlays provided by government at all levels.
All because Toni Preckwinkle and her majority wouldn’t crack down and throw out the criminal element that causes the spikes in crime and injuries driving up the cost of county government.
And we can look at Seattle, and any of the other cities and counties that created a super-minimum wage in recent years. However well-intentioned such a move is, it doesn’t change the amount of money available to the factory, the storekeeper or the restaurant with which to pay their staffs.
- If a business can afford to pay $39/hour in total salaries for entry-level staff (after benefits, for simplicity of math here), that might be six employees at $6.50/hour, or five employees at $7.80/hour, or just four employees at $9.75/hour, or just three employees at $13/hour. This increase in the mandatory minimum wage will cause an immediate loss of some ten to thirty percent of entry level positions, denying people not just their hourly wage, but their critical first job, their first step on the ladder of a career.
- Worse still, since businesses will be unable to cut as many entry level positions as they should, because they simply need the workers to get the job done, this increase in the entry level positions’ cost will cause them to reduce the pay they give to upper-level jobs. The team leader and foreman positions, the shift manager and floor manager positions, every more important position that the entry level staffers aspire to, will suddenly be worth less. Again, businesses’ revenue isn’t increasing, so they have to shift the spending of that pie. If we overcompensate the novices starting out, then we have less to pay the experienced workers as they get promoted.
- So eventually, the businesses – some, many, or most, depending on the industry and the location – find that they cannot remain profitable at these salary levels, in this location. They will move outside the locale affected by the minimum wage. And as long as they’ve accepted the necessity of moving at last, why just move over the city or county line? Why not move to another state? Or even another country? Such ideas might never have entered their mind if they weren’t forced to… but now that an unaffordable 50% increase in mandated minimum wages has forced them to consider moving, they may as well look at the entire world for more welcoming destinations.
Yes indeed, virtually every unbiased study has confirmed it: increases in the minimum wage increase joblessness. They hurt the class they intend to help, by making such jobs scarcer, and by hamstringing even the employed population’s ability to rise in their careers to positions that would enable upward mobility.
All of the above is compounded by the state’s decision to increase income taxes by a third. Not only will the higher tax squeeze the standard of living of those who remain employed, it also provides a further encouragement for their employers to flee.
- For decades now, new businesses have sprung up in states without an income tax, and existing businesses looking at moves have favored the income tax free states over those with such a tax, the ones with higher income taxes being the least desirable of all.
- For decades, the companies that move into Illinois from elsewhere are those that have been given special inducements, tax break packages from city, county, and state, five or ten year promises of lower property taxes and income taxes. As dependent as Illinois has become on such bribes, as exemplified by Boeing, Conagra, and other world-class names, such a situation ensures that companies that lack such fame will never even consider Illinois for a startup or move. It’s the law of unintended consequences: if you have to be famous to be desirable to Illinois, and you know you’re not famous (yet), then you know better than to even think about Illinois. Far better to locate in Texas, Louisiana or Oklahoma, then just sell your product into the thieving state of Illinois from a safe distance.
A Veritable Flood
Illinoisans have long been familiar with the concept of a river overflowing its banks, so perhaps that’s the best analogy for our current situation. We have businesses – plenty of businesses – though never enough to fund the unchecked growth of government spending caused by predatory unions like the CTU, IEU, and AFSCME.
So our businesses have spilled out beyond our borders, just as the water in our rivers sometimes overflows their banks. The Chicago River, the Illinois and Mississippi, and especially the Des Plaines River, are famous for doing immense damage when their waters splash over the banks and flood the streets and basements of homes nearby.
In much the same way, tax increases and crippling regulations, like Illinois’ unaffordable workman’s comp rates, our super-minimum wages, our outrageous property taxes and the looming behemoth of our unfunded public pension liabilities, all combine to overwhelm our business community, driving some, more and more every year in fact, to move some, many, or all operations over our borders.
Unlike rivers, however, these businesses don’t trickle back into their original homes after a day or two, as water seeps back into its old river after the storm passes. Any business, or any individual, for that matter, fleeing Illinois for greener pastures, remains gone for good, for years, for decades, maybe even forever.
Once you flee for the welcoming soil of Indiana, Wisconsin, Texas and Florida, why would you ever return?
The undeniable truth is that, even before the shocking changes of 2017, Illinois was losing population and employers at an astounding rate. Some 95,000 people left Illinois in 2016 alone, that’s a rate of nearly a million people per decade. Most of these are taxpayers, present or future; many of them are also employers, as the owners of consultancies and small businesses, taking their businesses with them to more welcoming shores.
In the end, this may be the most damning statistic of all to Illinois. As tens of thousands of people abandon the state, the state’s problems get worse and worse. To return to our river analogy, it’s like a small current growing into a strong undercurrent, growing and growing until the river has a maelstrom, grabbing and sinking everything in its path.
As Illinois – not just the state, but its counties and cities, its school districts and park boards – all cooperate to make Illinois an ever more miserable place to do business, its revenues will continue to drop despite higher percentage rates; even 100% of nothing is still nothing, and every company we drive out is free of our tax rates forever.
A Call to our Cities
Largely silent in these debates have been our localities. Outside of our biggest cities, like Chicago, Rockford, Peoria, etc., most cities stay out of the politics of their county and state issues. Their police and fire needs, parks and libraries, local streets and sewers, are all quite enough to keep part time mayors and part time aldermen and trustees more than busy.
But Illinois has gone too far this time. The state of Illinois, the city of Chicago and the County of Cook have conspired to make Illinois a tax and regulatory hell for long enough. Our cities and villages are watching their sales tax revenue drop as consumers can no longer afford to shop… they can’t collect enough in property tax because home values drop even as rates climb… because nobody in his right mind wants to move to Illinois anymore.
So our cities and towns have begun – just begun, mind you, but it IS a welcome start – to react to these many outrages.
In 2017, nearly a hundred communities have voted to reject such things as the Cook County super-minimum wage ordinance and the Earned Sick Leave mandate. Rejected them outright. Said “no thanks, that’s not for us. We can’t afford it!”
The cities and villages had no say in the state income tax; there’s nothing they could do about that. But they could react to the minimum wage, and did. In droves! And they could react to the sick leave mandate – nobody denies its value, but you’d have to be blind not to realize that not every employer can afford to offer it. So these cities and villages, from the northernmost edge in Cubs territory to the southernmost end, deep in White Sox territory, have voted to spare their businesses these fatal errors.
Now one thing remains: at this writing, the beverage tax is on hold, as Cook County attempts to prove that this ridiculously unevenly-applied tax does in fact pass constitutional muster in a state that requires taxes to be evenly applied. That’s a high bar to meet, for a tax that’s assessed on a person if he pays with cash, check or credit, but not if he pays with a SNAP card. The same person, the same beverage, subject to it or exempt from it depending on his manner of payment for the transaction at hand. It cannot possibly be deemed constitutional in its current form by any sane jurist.
But the County board can just attack the problem again, and tweak it until it’s constitutional. They will find a way to impose it on us if they are not stopped.
It is time for the cities and villages to do the math and realize the damage to be done by this destructive measure. Time to shout “No More!” to the constant attack on property values, by escalating property taxes, income taxes, sales taxes, soda taxes, and every punitive regulation under the sun. “No More!” to the constant effort to drive taxpayers and employers out of the state.
It’s time for us to see if those Founding Fathers, so many years ago, were right when they said that the best government is the most local government… That these are the representatives who know their constituents best, who can understand their needs and protect them from distant tyranny.
The cities and villages of Cook County have responded well in recent weeks, on the matters of minimum wage and sick leave mandates; will they rise to the occasion and do the same on the beverage tax, joining the grocers and beverage distributors in their lawsuit? Will they realize that this beverage tax is indeed the last straw, and it’s time to act?
Or will they just sit back, and twiddle their thumbs, and watch their retailers, their manufacturers, their grocery stores and restaurants suffer loss of customers and loss of sales, followed by the inevitable losses in jobs and tax revenues?
Well, mayors and presidents, aldermen and trustees?
What’ll it be?
Copyright 2017 John F. Di Leo
John F. Di Leo is a Chicagoland-based trade compliance manager, actor, and writer. His columns are regularly found in Illinois Review.
Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included.
