Illinois: A case study in legalized injustice

by Ryan Streeter on December 20, 2011. Follow Ryan on Twitter.

Here in Indiana, where I’m writing, we’ve had over a dozen companies leave Illinois for the Hoosier State in recent months. Why? Because the Illinois regime had the bright idea this past year that raising their corporate income tax to nearly 10% would be a lot more effective than dealing with the fiasco that is the state’s budget. According to the ideological left, businesses make more money than they need – so what’s a few percentage points in the tax rate? CEOs will still live in mansions and there will be plenty of money to go around. Plus, who wants to face the angry mob (which includes friends) when you start trying to mess with the state’s ruinous ledgers?

Because the Illinois model is unsustainable, it invites injustice. The Wall Street Journal’s editors put it well today: Illinois favors the 1% over the 99% in the way it favors big and well-connected businesses over small ones. The editors write:

So [Gov.] Quinn started giving special tax passes to the biggest and most influential 1%. The Chicago Tribune reported in May that Mr. Quinn had already doled out corporate welfare to at least 80 firms, costing the state nearly $500 million since 2009. The Chicago Merc and the Board of Trade complained that the Quinn tax grab would cost them $50 million a year.

Naturally, Mr. Quinn justifies the carve-outs as essential to job creation. But in January Democrats claimed that tax increases would have no economic impact. Now small and medium-sized businesses that don’t have lobbyists are stuck paying the higher tax rates. Mr. Quinn’s policies benefit the 1% of politically connected businesses at the expense of the other 99%, often small shops with 10, 20 or 50 employees.

It’s not typical to use the expression “social justice” to businesses, but it’s hard to see what Illinois is doing as anything other than a fundamental violation of natural justice. When the larger companies can effectively buy their way to lower tax rates while smaller companies are left with two choices – pay the 10% tax or leave the state – it’s hard to see how different this is than the days of old when tax collectors took what they could until and unless they were bribed.

It’s commonplace to say, well, businesses will vote with their feet, and that provides the solution to the bad tax policy. That’s fair enough. But that doesn’t address the greater moral failure of privileging the few at the expense of the rest. This is corruption at its most nuanced: it’s legal, but it’s wrong.