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SEIFFE:  Expectations

Tuesday, November 13, 2007

By Ralf Seiffe

Here is an interesting question: taxes are much higher in Wisconsin than in Illinois, right? That’s my sense and our local politicians keep telling us that Illinois’ tax burden ranks somewhere in the middle of all states. Their message is that we should not worry about the Cheeseheads because their taxes are too high to steal our opportunity and jobs. Nevertheless, a trip across the state border tells a different tale; Southeastern Wisconsin business parks and retail centers are growing smartly and they are full of names that used to be located in Illinois. Wisconsin’s ability to attract our businesses despite their higher taxes is an apparent paradox worth looking into. 

That Illinois is losing economic steam is inarguable. According to John Tillman, Chairman of the Illinois Policy Institute, Illinois’ contribution to the nation’s Gross Domestic Product has fallen dramatically. A generation ago, Illinois accounted for 6.3% of all the goods and services Americans produced but since then, our share has fallen by 28% to only 4.5%. And, it may be worse than the raw numbers indicate if agriculture has just "kept up" with the rest of the economy. If so, our non-farm workers have fared even worse than first sight would indicate. Either way, this significant economic erosion diminishes opportunities for Illinois’ workers and signals the probable emigration of our most ambitious citizens to states with better prospects. 

During the same period of time, Wisconsin’s once, basket-case industrial-age economy has shown signs of remarkable revivification. Brett Farve is not the only ambitious talent the state has attracted. It has created the epicenter of Midwest biotech and it’s repurposed its foundries and metal-bangers into enterprises like Tower Technologies. It manufactures wind power turbines and business is so good, it took over Cicero’s Brad-Foote Gear Works last month. 

Wisconsin is winning economic battles with us flatlanders because businessmen have decided that their costs will be lower in Wisconsin. While taxes are only one of a business’ costs, they are the most emotional for business owners and are much more repugnant than other costs. In Illinois, the number of taxes, their rates and complexity are daunting and the future looks worse. Businesses in Chicago wonder how long it will take the mayor to turn the city into one that costs as much London with the ethical sensibilities of Lagos. In the ‘burbs, they wonder how long it will take to perfect "Stroger Incorporated", a closely-held, family business designed to pump suburban wealth into the hands of the County Board president’s constituency through the fingers of his sisters and his cousins and his aunts. Then, there’s a delusional governor who looks at a $100 billion accumulated deficit in the state’s finances and decides we’re not spending enough. Worse, he proposes a tax on business that has more payouts for the state’s treasury than the most blue-skyed multi-level marketing scheme. 

It is true that none of these things has come to pass here in Illinois but an 11% sales tax was once unthinkable, too. Businessmen, like skilled athletes, know the path to success is to concentrate on where the ball will be and run to where the play will be made and with new taxes proposed at every level, businessmen can see the likely trajectory of taxes in Illinois. 

This situation is made worse by the behavior of the current crop of Democrat officeholders. By promoting new programs and the taxes necessary to pay for them, they set expectations in the minds of their clients, as well as the state’s businessmen. When they do, they create demand for new programs while, at the same time, instill fear in the business community that they’ll be compelled to pay for them. 

Compounding this, the countervailing forces that usually control insatiable governments are missing in Illinois. The official Republican Party has been co-opted by the champions of spending and personal gain while individuals who might describe themselves as Republican are in deep despair. The news media is unconscious. 

The result? Business make predictions about the future and Illinois scares them. Even though the taxes in Wisconsin are nominally higher now, the evidence on the ground shows that businessmen estimate that the future will be more expensive in Illinois. This perception will continue to drive employers from Illinois as has been the case for decades. If these fleeing businesses serve the Midwest and need to stay in this area, they are setting up shop in Pleasant Prairie, Wisconsin, or the equivalent spaces in Indiana or Missouri. 

© 2007 Ralf Seiffe

Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader and Illinois Review.

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