- Contributed by J. Fred Giertz

Was raising both the state income tax rate by 67 percent and the corporate tax rate by 46 percent the right thing to do?

In retrospect, it was certainly something that had to be done; whether that exact amount had to be done or not is another question.

Illinois clearly needed extra revenue. Illinois was not a healthy state one year ago. If you had a healthy state, where bills were paid, it wouldn’t make a lot of sense to have a substantial increase in taxes. But for the past five to eight years, Illinois has been teetering on the edge of insolvency. Business doesn’t like to pay higher taxes, but business also doesn’t like to operate in a state that’s totally irresponsible – a state that doesn’t pay its bills or fix its roads, for example. So it wasn’t a choice between a well-run state government and low taxes or a well-run state government and high taxes; it was a choice between a very imprudent state with low taxes and a slightly more prudent state with higher taxes.

The tax increase was sold by Gov. Pat Quinn as a temporary measure. Do you foresee these tax rates being repealed or phased out to former levels in near future?

No. The state has had a long-term situation where it hasn’t been paying for what it has been spending, and that was true before the tax increase and to a lesser extent today. Even in this last year, we’re still running a shortfall, but one that’s just not as big as in the past. So there’s virtually no chance we’ll let the tax expire. The choice will be between having a huge cut in state government spending, which I don’t think we have the political will to do, or continuing with something like the current tax rate .. But given the fact that we were on the brink of insolvency, something had to be done. This past year, though, we have had some measure of discipline, much more so than in the past. So there was actually an improvement in the process this year.

What effect have the tax increases had on the Illinois economy? Many predicted this would drive businesses out of the state to Wisconsin and Indiana. Has that happened? Or is it just a matter of time before it happens?

The state of Illinois is not in a great position right now, but the counterfactual is, how would we have done if the state were spending an extra $5 billion more every year than it took in? It’s very difficult to tell what the actual impact is. A tax increase in and of itself is not a very good idea for business, but if the state is not behaving in a prudent way, that’s also not a very good thing for business.

J. Fred Giertz is a University of Illinois professor of economics and member of the Institute of Government and Public Affairs at The University of Illinois. Giertz discusses the effect of the state of Illinois raising personal and business tax rates one year later.