Illinois is definitely a blue state, led by Democrat Gov. Pat Quinn. Democrats have controlled both the Legislature and the governorship since 2003. The state is in a “crippling” budget crisis, with a negative general-fund balance and a $13 billion budget deficit. There is another $6 billion to $8 billion in carry-over debt from the last fiscal year — with vendor bills simply unpaid. The state’s bond rating was downgraded in 2010 to an “A-minus.” The total state debt is more than $120 billion. Illinois is very blue.
In response the Legislature passed a 66 percent state income-tax increase, from 3 percent to 5 percent, and raised corporate taxes to 7 percent. The Illinois combined corporate tax and personal property-replacement tax rates equal 10.9 percent, the highest in the industrialized world, according to the Tax Foundation. On the spending side, the Legislature implemented a growth cap of 2 percent. The vote fell along strict party lines, 60-57 in the House and 30-29 in the Senate. Though those voting for the increase (all Democrats) expressed their difficulty in voting “yes,” they are the same people who approved the spending.
In contrast, Illinois is now surrounded by red states on the east, north, and west. Indiana’s Republican Gov. Mitch Daniels has cut state spending significantly, resulting in a “AAA” bond rating. The state has one of the smallest annual debt levels at $1.2 billion, compared with Iowa’s $2.3 billion.
In Michigan, computer executive and entrepreneur Republican Rick Snyder ran on increased economic development and new jobs. He has no political experience, yet won with 58 percent of the vote. In Wisconsin, new Republican Gov. Scott Walker called a special legislative session on budget issues, including the $3 billion deficit and $11 billion debt.
On the south side, Illinois has some “Blue” friends: Missouri Gov. Jay Nixon and Kentucky Gov. Steven Beshear. Nixon has enacted significant budget cuts ($700 million), with more expected. The state has a projected fiscal 2012 deficit of less than $1 billion, with a total debt of just over $18 billion.
Kentucky, like Iowa, is dealing with a split Legislature. Kentucky has a $5.5 million annual deficit. In 2010, for the third time in 10 years, they were unable to reach a budget agreement during the regular session.
In Iowa, Republican Gov. Terry Branstad was sworn in on Jan. 14. Our budget situation is better than many of our neighbors, but the State Budget Solutions analysis shows us with $2.3 billion in outstanding debt and a total debt of $6.8 billion. We have a maximum personal income-tax rate of 8.98 percent, with a 9.9 percent corporate income tax. This is higher than rates in Illinois, even with its 66 percent increase. These tax rates are also higher than those of Indiana, Kentucky, Michigan, Missouri, and Wisconsin.
Recent newspaper articles highlight Daniels’ and Walkers’ response to the Illinois tax increases. “Illinois tax increase is our gain, says Wisconsin Gov.” and “Mitch Daniels Favors Tax Increases … In Illinois.” Both governors were half-joking, knowing how to earn headlines — but they were also at least half-serious. Daniels said he welcomes any Illinois (or Iowa?) business or resident wanting to pay less in taxes. He called those businesses providing goods and services without receiving payment “suckers.” Daniels has also been mentioned as a possible Republican presidential contender in 2012, so Iowans will become more familiar with him.
States, and their governors, will leverage every competitive advantage they can to bring in economic development and jobs. For now, we should all be glad we’re living in Iowa, not Illinois. However, the competition is aggressive, and Branstad and the Legislature should address our state budget and tax rates accordingly.
Deborah Thornton is a research analyst for the Public Interest Institute, a Mount Pleasant-based nonprofit research group. These views are those of the author and not necessarily those of the Public Interest Institute.