Illinois Senate passes Privilege Tax on investors

[Babybluejeans]

More germane to the discussion at hand though, people do make *residency* decisions based on tax policies. The kinds of people who are sophisticated and wealthy enough to do so are the kinds of people who will be targeted by the "privilege tax."

If they're choosing to live in Florida, for tax reasons or otherwise, they're not as sophisticated as you think.

[forgetful]

Consider me properly chastened for using the wrong word on a forum.

I can't imagine why he would tell a room full of law students that he was maintaining fraudulent *residency.* What could he possibly have to gain from doing so?

More germane to the discussion at hand though, people do make *residency* decisions based on tax policies. The kinds of people who are sophisticated and wealthy enough to do so are the kinds of people who will be targeted by the "privilege tax."

I'm sorry if my correction same off as smug.  I shouldn't have made the correction as it is irrelevant what its called and this is indeed a message board.  It was rude and unnecessary and I'm sorry.

The reason why people say/do things like this though is that they want to brag, and are arrogant (think they know the laws so they don't apply to them).  I've seen it a bunch of times and have seen it bite people in the ass. 

The reason it is odd, is that it saves him nothing in the other state taxes.  Any income paid, requires that taxes be paid in the state they earned the income (not where their residence is), or where the payee was located.  This makes taxes for many partners for big law firms insane, as they are required to file taxes in every state that their firm has an office.

My guess is your professor wanted to brag and sound cool.  He likely did not break the actual laws when filing taxes.

But you are exactly right, people of that ilk are the ones being targeted by the "privilege tax" because they do take advantage of the tax system (and often write the tax system).

[Dr. Blackheart]

Living in Illinois can be affordable in the right place. Working?  More iffy.

Take Cook County with everything built out, especially on the edges. Cook County essentially has a Steve Forbes' Consumption (VAT) Tax. Property taxes are very low, especially knowing everything is built and water rights are settled. The Racetrack, Casino and the Cook side of O'Hare builds the surplus. Avoid the sales tax by shopping in the nearby county (and except cars). Property values are stable, schools great, access easy. In the Cook burbs, all the taxing authorities are running surpluses as all the infrastructure is built out.

My advice. Diversify and hide.

[MU82]

Am now carrying a Florida Drivers License and am registered to vote in the Great State of Florida.

I wish you health and happiness. Just be sure to watch those hanging chads!

[Tugg Speedman]

Question for the flatlanders -  What are the specific issues you've personally dealt with during the past couple years of not having a state budget?   Minus the obvious late-payment issues to vendors, I'd be curious what impact it has on daily life ..

.. and what impact a possible bankruptcy would have on citizens.

mu03eng, what "things are getting worse" for you, what do you expect to be less "manageable" in the future, that you'd find Wisconsin to be better?

Two types of people ... those that pay into the system and those that rely on the system.

Most everyone here pays into the system so Illinois problems do not affect them.  It will if they jack taxes.

Those that rely on the system are finding it worse and worse.

The solution is bankruptcy.  Then all those pensions will only get a percentage of what they are owed (say 75ish percent) and stupid union contracts that waste tons of money will be broken.  Then Illinois will be the financially the strongest state in the union.

[mu_hilltopper]

Two types of people ... those that pay into the system and those that rely on the system.

Most everyone here pays into the system so Illinois problems do not affect them.  It will if they jack taxes.

Those that rely on the system are finding it worse and worse.

The solution is bankruptcy.  Then all those pensions will only get a percentage of what they are owed (say 75ish percent) and stupid union contracts that waste tons of money will be broken.  Then Illinois will be the financially the strongest state in the union.

Isn't the other solution to raise ("jack") taxes?

Help me out here :  https://ballotpedia.org/Tax_policy_in_Illinois



Admittedly that chart is 2015 .. but wouldn't Illinois' cash flow issues disappear if they raised their tax rates to Wisconsin levels?    (Most in WI are at the 6.2% rate.) (WI's sales tax is .75% less, noted.)

Somehow, Wisconsin manages.

[muwarrior69]

Isn't the other solution to raise ("jack") taxes?

Help me out here :  https://ballotpedia.org/Tax_policy_in_Illinois



Admittedly that chart is 2015 .. but wouldn't Illinois' cash flow issues disappear if they raised their tax rates to Wisconsin levels?    (Most in WI are at the 6.2% rate.) (WI's sales tax is .75% less, noted.)

Somehow, Wisconsin manages.

I think where most states get into trouble is with promising more than they can deliver on pensions. Double dipping does not help either. I know here in Jersey my town just re-elected our Sheriff who is collecting a 90K pension in addition to his 130K salary. He will be able to collect a second pension once he retires from being Sheriff. He is also eligible for Social Security.

[warriorchick]

I'm sorry if my correction same off as smug.  I shouldn't have made the correction as it is irrelevant what its called and this is indeed a message board.  It was rude and unnecessary and I'm sorry.

The reason why people say/do things like this though is that they want to brag, and are arrogant (think they know the laws so they don't apply to them).  I've seen it a bunch of times and have seen it bite people in the ass. 

The reason it is odd, is that it saves him nothing in the other state taxes.  Any income paid, requires that taxes be paid in the state they earned the income (not where their residence is), or where the payee was located.  This makes taxes for many partners for big law firms insane, as they are required to file taxes in every state that their firm has an office.

My guess is your professor wanted to brag and sound cool.  He likely did not break the actual laws when filing taxes.

But you are exactly right, people of that ilk are the ones being targeted by the "privilege tax" because they do take advantage of the tax system (and often write the tax system).

Speaking of bragging:

When I took my tax accounting classes at Marquette, our professor was the retired head of the IRS in Wisconsin.  He told us the story of a particular country club where an unusually high number of members were getting audited.  Many people aren't aware that the IRS will pay a reward to people who report tax evaders - 10% of everything they collect, including interest and penalties.
 Turns out that one guy was turning in all the guys that stood around in the bar and boasted about how much they cheated on their taxes.  It's how he put his kids through college.

[warriorchick]

Isn't the other solution to raise ("jack") taxes?

Help me out here :  https://ballotpedia.org/Tax_policy_in_Illinois



Admittedly that chart is 2015 .. but wouldn't Illinois' cash flow issues disappear if they raised their tax rates to Wisconsin levels?    (Most in WI are at the 6.2% rate.) (WI's sales tax is .75% less, noted.)

Somehow, Wisconsin manages.

The rate was 2% when I moved here.  And I am pretty sure we're not getting twice the services now.

Illinois' sales tax is 50% higher than Wisconsin, plus you have county and city sales tax on top of that.  City of Chicago sales tax is among the highest in the country, if not the highest.  Tennessee's sales tax rate is up there with Chicago's, but they have no income tax, and property taxes are a fraction of what they are in Illinois.

But if you want to drive all the high income folks out of the state, by all means, raise the state income tax. 

[warriorchick]

McHenry

You're lucky my Grandma Swettenham isn't alive to read your post.  She would kick your enginerd ass.

[GGGG]

I think where most states get into trouble is with promising more than they can deliver on pensions. Double dipping does not help either. I know here in Jersey my town just re-elected our Sheriff who is collecting a 90K pension in addition to his 130K salary. He will be able to collect a second pension once he retires from being Sheriff. He is also eligible for Social Security.

Double dipping isn't as much of a problem as the pension formulas are.  Someone has to collect that 90k salary regardless if is someone on pension or not. 

[dgies9156]

Question for the flatlanders -  What are the specific issues you've personally dealt with during the past couple years of not having a state budget?   Minus the obvious late-payment issues to vendors, I'd be curious what impact it has on daily life ..

.. and what impact a possible bankruptcy would have on citizens.

mu03eng, what "things are getting worse" for you, what do you expect to be less "manageable" in the future, that you'd find Wisconsin to be better?

Well, lets start with the university system. Southern Illinois University in Carbondale had to borrow $35 million from its sister campus in Edwardsville because it has received no state support since January. Classes are being cancelled and enrollment is down to 17,000 from 21,000 because the state has suspended the MAAP program for low-income students seeking college.

Virtually all of the non-University of Illinois campuses (called the Directionals) as well as Chicago State and Governors State are in deep trouble financially right now.

[Pakuni]

Double dipping isn't as much of a problem as the pension formulas are.  Someone has to collect that 90k salary regardless if is someone on pension or not.

The pension formulas aren't really the problem either. If the governor and legislature would have simply continued to make their contributions to the system back in the 90s and early 2000s as they were supposed to - instead of deferring it to fund pet projects - the pension shortfall wouldn't be nearly as big as it is today.
The blaming of the mess on unions and outrageous benefits, etc., is provably false (and has been proven false many times).

From fiscal 1996 to 2016, unfunded liabilities at those funds grew by nearly $108 billion, or 675 percent, despite a long-term commitment to ramp up annual pension investments and to improve financial soundness at the retirement funds, according to the Commission on Government Forecasting and Accountability.
The commission attributed the largest share of that debt growth, $44.6 billion, to the shortfall in employer pension contributions from the state. Bookkeeping changes that lowered predictions of future investment returns accounted for another $31 billion in debt growth, while lackluster investment returns grew the debt by $14.7 billion.
Meanwhile, employee salary and benefit increases collectively grew the debt by $1.7 billion, or just 1.3 percent, the commission reported.

http://www.bettergov.org/news/big-pensions-just-tiny-part-of-big-pension-mess

[GGGG]

The pension formulas aren't really the problem either. If the governor and legislature would have simply continued to make their contributions to the system back in the 90s and early 2000s as they were supposed to - instead of deferring it to fund pet projects - the pension shortfall wouldn't be nearly as big as it is today.
The blaming of the mess on unions and outrageous benefits, etc., is provably false (and has been proven false many times).

From fiscal 1996 to 2016, unfunded liabilities at those funds grew by nearly $108 billion, or 675 percent, despite a long-term commitment to ramp up annual pension investments and to improve financial soundness at the retirement funds, according to the Commission on Government Forecasting and Accountability.
The commission attributed the largest share of that debt growth, $44.6 billion, to the shortfall in employer pension contributions from the state. Bookkeeping changes that lowered predictions of future investment returns accounted for another $31 billion in debt growth, while lackluster investment returns grew the debt by $14.7 billion.
Meanwhile, employee salary and benefit increases collectively grew the debt by $1.7 billion, or just 1.3 percent, the commission reported.

http://www.bettergov.org/news/big-pensions-just-tiny-part-of-big-pension-mess

I agree with you completely.  Wisconsin is an example of a state that has kept up its pension funding so it is in very good shape.

I was speaking specifically to 69's example.  My understanding is that in Wisconsin, as long as that Sheriff is not in Milwaukee County, that he wouldn't get a separate pension when he retired, but he would have his original pension recalculated to account for the increased years of service.

Every pension formula can be gamed to an extent, but it seems like some state's formula is easier to gain than others.

[warriorchick]

The pension formulas aren't really the problem either. If the governor and legislature would have simply continued to make their contributions to the system back in the 90s and early 2000s as they were supposed to - instead of deferring it to fund pet projects - the pension shortfall wouldn't be nearly as big as it is today.
The blaming of the mess on unions and outrageous benefits, etc., is provably false (and has been proven false many times).

From fiscal 1996 to 2016, unfunded liabilities at those funds grew by nearly $108 billion, or 675 percent, despite a long-term commitment to ramp up annual pension investments and to improve financial soundness at the retirement funds, according to the Commission on Government Forecasting and Accountability.
The commission attributed the largest share of that debt growth, $44.6 billion, to the shortfall in employer pension contributions from the state. Bookkeeping changes that lowered predictions of future investment returns accounted for another $31 billion in debt growth, while lackluster investment returns grew the debt by $14.7 billion.
Meanwhile, employee salary and benefit increases collectively grew the debt by $1.7 billion, or just 1.3 percent, the commission reported.

http://www.bettergov.org/news/big-pensions-just-tiny-part-of-big-pension-mess

It's the formulas, too.  There are plenty of teachers whose pensions are larger than what they were making when  they were actually working. In Illinois, your pension was based on what your salary was the last two years before you retire. This system is openly gamed by giving teachers big raises those last two years.  My next door neighbor did not start teaching until she was in her 50s.  She worked about 10 years, and if she has an average life expectacy, she will collect more in pension than she did in wages.

Pension laws were also crafted as a way to grant political favors.  There is a famous story about a person who was a substitute teacher for 1 day and now is eligible to collect a pension.  He was a teacher's union lobbyist, natch.

https://www.forbes.com/sites/adamandrzejewski/2014/10/14/one-day-sub-nearly-1-million-in-teacher-pension/#fdb32fc70147

[dgies9156]

Illinois' problems are threefold:

1) We have way too many governments (school districts, special districts, local, county state etc). Pat Quinn tried to deal with this one but got shot out of his saddle so quickly he had no idea what hit him.

2) Every time we raise income taxes, our elected public officials get defeated. See, Ogilvie, Richard, Governor, State of Illinois 1970 to 1972.

3) Our idea of dealing with the post-industrial economy in Illinois is to put as many people on the government payroll as possible. This is the vestige of the Chicago machine patronage system (which is alive and well and has Michael Madigan as its patriarch.

[DegenerateDish]

It's the formulas, too.  There are plenty of teachers whose pensions are larger than what they were making when  they were actually working. In Illinois, your pension was based on what your salary was the last two years before you retire. This system is openly gamed by giving teachers big raises those last two years.  My next door neighbor did not start teaching until she was in her 50s.  She worked about 10 years, and if she has an average life expectacy, she will collect more in pension than she did in wages.

Pension laws were also crafted as a way to grant political favors.  There is a famous story about a person who was a substitute teacher for 1 day and now is eligible to collect a pension.  He was a teacher's union lobbyist, natch.

https://www.forbes.com/sites/adamandrzejewski/2014/10/14/one-day-sub-nearly-1-million-in-teacher-pension/#fdb32fc70147

I can't believe I don't remember this story, but this is the perfect story of how Illinois is run, absolutely dead on the money.

[dgies9156]

There is a way to solve this problem, if we want.

In post-Watergate 1974, Tennessee elected a Democrat governor. His name was Honest Ray Blanton. Now Honest Ray was a bit of a charlatan. He sold the state motor pool to one group of supporters and bought new vehicles from another who owned auto dealerships. And he sold liquor licenses in Davidson County (Nashville). His family and friends were involved in the now-famous bid-rigging of paving contracts for Tennessee roads.

Tennesseans generally liked the convenience of having more liquor stores. And they figured the sale and repurchase of vehicles was a spoils of being elected. And, well, the roads got built.

But when Honest Ray sold prison pardons, the good people of the state of Tennessee had enough.

Tennesseans elected Governor Lamar Alexander, the anti-Honest Ray, in 1978. Now Tennessee is not a poster child for good government, but things get done, the economy is very good and government is generally a lot cleaner than it used to be.

All we have to do is throw the status-quo out. For some reason in Illinois, we're like trained sea lions in search of a fish. We beg and our politicians throw us a fish. Period.

[mu_hilltopper]

I think where most states get into trouble is with promising more than they can deliver on pensions. Double dipping does not help either. I know here in Jersey my town just re-elected our Sheriff who is collecting a 90K pension in addition to his 130K salary. He will be able to collect a second pension once he retires from being Sheriff. He is also eligible for Social Security.

"Double dipping" makes people mad (jealous), but doesn't screw up finances.   A pension is like a 401k (but with a performance guarantee.)   No one would be mad if you had a job and you decided to withdraw cash from your 401k at the same time.

The 2nd pension you mention .. is an earned pension.   Pension rules differ, but they are all on the premise that you work for X years, your employer is paying Y into a fund every year, to pay you Z for a predicted N years when you're done.   

Whether you have a salary and a pension, or two pensions, or whatever .. it's just a combination of compensation for your work, plus withdrawals on your vested interest in a pension that was part of your previous work.

There's no scandal in that, it's part of your employment compensation offer:  we will pay you something now, and something later.   

The scandal is making employment offers and not funding them.  (and making excessive offers.)

[Dr. Blackheart]

There is a way to solve this problem, if we want.

In post-Watergate 1974, Tennessee elected a Democrat governor. His name was Honest Ray Blanton. Now Honest Ray was a bit of a charlatan. He sold the state motor pool to one group of supporters and bought new vehicles from another who owned auto dealerships. And he sold liquor licenses in Davidson County (Nashville). His family and friends were involved in the now-famous bid-rigging of paving contracts for Tennessee roads.

Tennesseans generally liked the convenience of having more liquor stores. And they figured the sale and repurchase of vehicles was a spoils of being elected. And, well, the roads got built.

But when Honest Ray sold prison pardons, the good people of the state of Tennessee had enough.

Tennesseans elected Governor Lamar Alexander, the anti-Honest Ray, in 1978. Now Tennessee is not a poster child for good government, but things get done, the economy is very good and government is generally a lot cleaner than it used to be.

All we have to do is throw the status-quo out. For some reason in Illinois, we're like trained sea lions in search of a fish. We beg and our politicians throw us a fish. Period.

Here is who runs the state, and he is elected by those he employs on his public payroll. His daughter is his watchdog.

[mu_hilltopper]

Illinois' sales tax is 50% higher than Wisconsin, plus you have county and city sales tax on top of that.  City of Chicago sales tax is among the highest in the country, if not the highest.  Tennessee's sales tax rate is up there with Chicago's, but they have no income tax, and property taxes are a fraction of what they are in Illinois.

But if you want to drive all the high income folks out of the state, by all means, raise the state income tax. 

We need a fuller picture for comparisons, no doubt.   Chicago has a higher sales tax than MKE .. but WI State tax revenue is shared with MKE at some rate .. perhaps IL shares with CHI as well, but at a different rate, thus their need to make up the revenue, etc, etc. 

As for driving out high income folks:
https://www.forbes.com/sites/beltway/2016/05/26/do-high-state-taxes-drive-away-millionaires-not-really

[warriorchick]

We need a fuller picture for comparisons, no doubt.   Chicago has a higher sales tax than MKE .. but WI State tax revenue is shared with MKE at some rate .. perhaps IL shares with CHI as well, but at a different rate, thus their need to make up the revenue, etc, etc. 

As for driving out high income folks:
https://www.forbes.com/sites/beltway/2016/05/26/do-high-state-taxes-drive-away-millionaires-not-really

That study focused on folks who make $1 million a year or more. That is a tiny number (relatively speaking). 

In my statement, I meant people who earn six figures or more.  And I wasn't necessarily saying that an increase in income tax alone would prompt a lot of them to move (and the study you cited used that as the criterion), but in Illinois, it just might be the last straw.  It's already been noted that Chicago is the only major city in 2015 (the last year statistics were available) to lose population.

[dgies9156]

Here is who runs the state, and he is elected by those he employs on his public payroll. His daughter is his watchdog.

Whose fault is that?

There are 12 million Illinoisians. We should expect more from our elected representatives. We allow Madigan and Friends of Mike Madigan to set our future for us.

Until we stop being politically lazy and stop barking for fish like a trained sea lion, we get the government we deserve. The people of District 22 control Illinois because we let them. Period!

[MU82]

We need a fuller picture for comparisons, no doubt.   Chicago has a higher sales tax than MKE .. but WI State tax revenue is shared with MKE at some rate .. perhaps IL shares with CHI as well, but at a different rate, thus their need to make up the revenue, etc, etc. 

As for driving out high income folks:
https://www.forbes.com/sites/beltway/2016/05/26/do-high-state-taxes-drive-away-millionaires-not-really

I remember that study when I read about it last year, and I was mildly surprised - but not stunned. Successful people, in general, like where they are.

But even in the unlikely event that it did have the move-away effect in Illinois, a bunch of folks here already said they were planning on leaving, so it apparently wouldn't make a difference!

FWIW (probably not much), when I left Chicago for Charlotte in 2010, taxes had zero to do with it. The overall cost of living did have something to do with it, as did the weather. Mostly, though, we just felt like making a change.

[Dr. Blackheart]

Whose fault is that?

There are 12 million Illinoisians. We should expect more from our elected representatives. We allow Madigan and Friends of Mike Madigan to set our future for us.

Until we stop being politically lazy and stop barking for fish like a trained sea lion, we get the government we deserve. The people of District 22 control Illinois because we let them. Period!

We did. We elected Rauner.