Thursday, April 10, 2008

Cayman Islands-style economic development by tax haven

How are we going to generate more wealth in Illinois, create more jobs and otherwise strengthen our economy?

The best way is to develop a workforce that is the smartest in the world. It's also very powerful to invest in our infrastructure so our transportation network is strong.

That costs money. And the way to spend that money is with taxes.

There's an alternative strategy for economic development, and the substantive and rich (no pun intended) debate on the Mike Smith Amendment (HJRCA 42) illuminated this strategic difference on economic development policy. The alternative strategy is to attract the wealthiest people possible to live in your state by serving as a tax haven and not taxing them.

That's what the Cayman Islands does, which is why lots of corporations decide to legally move there and avoid American taxation.

And that's essentially what Illinois has been doing, because we soak the poor and middle class with our state and local government. We tax low income people much more than high income people.

Well, that's hasn't been working so well. Our job growth hasn't been as good as it should be. And in my view, that's because about half our schools are dramatically under-funded (or at least, the outcomes aren't very good) and our infrastructure is falling apart. It isn't because we've been taxing high income people too much, because we don't. We have the lowest tax rate of any state in the nation that has an income tax.

So, HJRCA42 would fund education and a capital bill by putting a moderate income tax rate (relative to other states) of 6% on anyone earning $250,000 a year. It would also cut taxes by an average of 12% on everyone who earns less than $250,000.

During debate on the floor today and in the State Government Administration Committee yesterday, several legislators who opposed the amendment felt that this would hurt economic development. Why?

Because by taxing people who have a good year and earn more than $250,000, that could induce them to move somewhere else. And the best way to generate jobs and wealth and economic development, in that view, is to induce wealthy people to live in Illinois by not taxing them much at all.

That's better than investing in a smarter workforce and better schools.

That's better than a modern transportation network.

It's better to keep taxes on the wealthiest low -- like a tax haven, really -- than it is to invest in all of our people through better schools and better public services.

That's the core of the economic development strategy advanced by opponents of this amendment.

And that sure seems like a lame economic development strategy to me.

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