January 20, 2011
State Budgets: Raise Taxes or Slash Spending (or Both)?
Posted by Christine Hurt

So, I live in a state with an absolutely amazing budget shortfall.  Illinois even made 60 Minutes.  Rockford was featured in an unflattering NYT article yesterday, and I guess Bruce Springsteen or John Mellencamp will come and write songs about us now.  So, the Illinois legislature decided to raise taxes.  At first, this didn't seem to be a big deal to me.  O.K., the state has no money, so in order to pay its bills, it needs to raise a little money.  However, the tax rates almost doubled.  Individual tax rate goes from 3-6%, and corporate tax rate goes from 4.8-8%.  Wow.  That's pretty big.  And no corresponding promise to cut spending.  Just give us a lot more money and trust us.  Desperate times call for desperate measures, but this one seems to be off the mark.  (Here's my colleague Larry Ribstein's jurisdictional take on being the one state to raise corporate taxes.)

Here in Champaign, the tax increase has a familiar picture on it:  Jimmy John's Gourmet Subs.  Jimmy John Liautaud, the founder, is a Champaign native and has run the successful national franchise from this city, providing jobs, philanthropy, and community involvement.  Until this week!  Liautaud has expressed deep contempt for the tax increase and has voted with his feet.  He moved his family from Champaign to Florida, enrolling his children in school there (taking them out of our children's school, in fact).  He is also in discussions with many other states to move the headquarters of Jimmy John's out of Illinois.  This will be a great blow to Champaign.  In fact, a Facebook campaign in our small hamlet has been started to show some love to the Liautauds so they stay here.  And, thinking more broadly, I can't imagine that Jimmy John's will be the only business to move, and that can't be good for the Rockfords of Illinois, either.

When Illinois announced its tax increase, Rick Perry, the governor of Texas, seemed to gratuitously criticize the move, touting the Texas government's resistance to tax hikes as good government.  But Texas' response may be short-sighted as well, though on the different side of the coin.  Today, the Texas House of Representatives revealed proposed "slash and burn" cuts to higher education, including deep cuts in financial aid and funds to community colleges and junior colleges.  Sure, lets cut spending, even higher education spending, but I would think that cuts in financial aid and two-year colleges hits those already hit hardest by the economy.  The Texas Senate will propose its own cuts soon.

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