This story was co-published with Crain's Chicago Business.
Illinois hiked the state income tax rate by 66 percent in 2011 and three years later, according to revised census estimates, the state’s population had grown by more than 20,000. The tax rate dropped down again in 2015 and, since then, the census estimate has plunged 60,000.
There’s a popular and populist narrative afoot in Illinois that taxes are a root cause of a recent population swoon. But experts say a careful look at the data, both in Illinois and elsewhere, blow big holes in that notion.
“The kneejerk tax thing doesn’t work because you can find high-tax areas that are growing in the U.S. and you can find low-tax areas that are declining,” said Chicago demographer Rob Paral. “I know that gets lost on people who want to blame taxes on everything.”
Exhibit A is Minnesota, the state with the highest income tax rates in the Midwest but one of the fastest growing populations. Exhibit B is Kansas, suffering slow population growth despite going on a tax-cutting frenzy sold as a way to supercharge the state.
Some complicated stew of events and trends clearly is affecting Illinois, with recent annual census estimates showing headcount nudging down as immediate neighbors grow, albeit marginally. Economic experts say one possible reason for the divergence is that neighbors benefited more significantly from a resurgence in auto manufacturing following the federal bailout of that industry by the Obama administration.
Rather than spur sophisticated analysis of a multifaceted problem, the numbers more typically become fodder for a blame game in which scoring political and ideological points is paramount.
The instinct to pounce obscures a statistical quirk of the census: population estimates decried as disastrous on first blush often get revised upwards, sometimes significantly, to little fanfare. That clearly has been the case for Illinois, where a numbers downturn is troubling but far from the freefall some media reports and partisans suggest.
In 2016, for example, the Census Bureau’s American Community Survey population estimate for Illinois was initially listed as 12,801,539 and said to reflect a drop of more than 37,000 from the previous year. In 2017, the initial estimate was pegged at 12,802,023 and said to be down more than 33,000.
The glaring problem, of course, is that the first estimates released for both years were almost identical, so the big back-to-back declines in population that stirred sky-is-falling headlines don’t add up. What got buried in the analysis was that the 2016 estimate was later increased significantly from its original value.
Such recalculations are common with census estimates, and it’s too early to tell how those dire sounding numbers for 2017 will be revised.
What is clear, however, is that because this is an election year a distorted storyline about population loss is sure to get elevated to a partisan rant: Somebody running for office in Illinois screwed up big-time.
Those periodic data dumps of population estimates from the Census bureau— the latest last month showing slight declines for Chicago and other bigger Illinois cities — have become fodder to be politically exploited and summed up in accusatory talking points and damning TV ads.
The scapegoat nominees include not just high taxes but House Speaker Mike Madigan, Gov. Bruce Rauner, government regulations, financial chaos and uncertainty from a two-year budget stalemate, not to mention old standbys greed and corruption.
“Over the past dozen years, 275,000 more people decided to leave Illinois than chose to come here,” Rauner, then the newly elected Republican governor, told the Democratic controlled General Assembly in 2015, re-emphasizing his frequent indictment of the state’s tax climate.
He uttered those words just weeks after the state income tax was cut by 25 percent. Yet, modest population gains turned to losses after Rauner took office, something duly noted by the governor’s critics.
“Rauner’s not only failed to stem the population loss, it has gotten worse as more people are leaving the state,” the Democratic Governors Association said in response.
Wars are not fought without ammunition, and statistics — be they population loss, tax rates, state-by-state comparisons on one economic morsel of measurement or another — are the bullets.
Of particular note is the public attention lavished on an annual, and totally unscientific, survey released by a moving company which in recent years says Chicago is the number one place among its customers to leave.
That’s where Minnesota looms as a spoiler of the tax-cutting political narrative embraced by many Midwestern states. Minnesota is a high-tax state, rated the 6th highest in the nation in state and local individual income tax collections per capita and 8th in the combined state and local tax burden, according to the most recent rankings of the Washington-based Tax Foundation.
Minnesota has a graduated income tax, with rates ranging from 5.35 percent for those of modest incomes to 9.85 percent for individuals with annual incomes above $156,000.
The Tax Foundation ranked Minnesota’s overall business tax climate among the nation’s worst. Even so, the state was among Midwestern leaders in population growth, with a 5.1 percent gain since 2010 and a 13.3 percent jump since 2000. The state also has the highest median household income and the lowest poverty rate.
Illinois is a laggard by comparison. By the most recent estimates, which will almost certainly be revised, its population has dropped 0.2 percent since 2010 but is up 3.1 percent since 2000.
Yet Illinois ranks second to Minnesota among Midwestern states in household income. And the personal income tax rate, on a rollercoaster which bumped back up to 4.95 percent last summer, is well below that in Minnesota and most, but not all, states in the region.
When Minnesota imposed its upper-tax bracket in 2013, critics warned it would prompt the affluent to flee. But in the year after the tax was enacted, the number of people filing tax returns showing income in excess of $1 million grew by 15 percent.
Focusing on taxation produces a distorted picture, said Larry Jacobs, a political science professor at the University of Minnesota.
“Clearly in Minnesota there are other things going on. Taxes are one component but also jobs, wages, quality of life, the education system,” Jacobs said.
The flip side of the taxation narrative, put into action by Kansas six years ago, is that cutting taxes will give a jolt to economic development and drive population growth. But it did neither, and Republicans who control the legislature had to backtrack on the tax cuts last year when revenue loss became untenable.
Illinois does have a significant tax Achilles heel, and it is property taxes, among the highest in the nation going back years and pre-dating recent population softness. That is a direct consequence of decades of state policy pushed by Democrats and Republicans that provides low levels of support for public schools, thrusting the lion’s share of those costs onto local property taxpayers.
While population estimates are fluid, there is no minimizing the consequences if Illinois’ population does indeed remain soft when the more precise 2020 decennial census is conducted. Stagnant or lower population would almost certainly lead to less representation in Congress and perhaps reductions in federal aid programs.
Where politicians and activists are programmed to seize on troubling data for advantage, demographers get their wonk on. And what the numbers experts see in Illinois is a continuation of long-range trends that accelerated with the Great Recession.
Immigration drove population growth in Chicago and Illinois during the 1990’s, but has slowed substantially since, according to the Migration Policy Institute. Meanwhile, the numbers of both black and non-Hispanic white residents have declined in recent years.
That has had a modest impact on population numbers in the Chicago area, but a much steeper one downstate. Of Illinois’ 102 counties, 88 of them have seen their population drop since the 2010 census, a phenomenon that tracks with mostly rural counties throughout the Midwest.
The head count in far southern Alexander County, where county seat Cairo has drawn national headlines about housing and poverty issues, has plummeted 23 percent in the past seven years. Median household income is $29,071, half the statewide average.
While Alexander is a worst-case example, the demographic vital signs reflect the broader portrait of rural Illinois: older, poorer and less populated. Only 14 counties in Illinois have experienced population gains since 2010, and seven of those are in the metro Chicago area.
Such demographic trends exist throughout the Midwest, but differences in economic structure could explain at least some of Illinois’ population malaise.
An analysis of Midwestern employment by Bill Testa, vice president and director of regional research at the Federal Reserve Bank of Chicago, shows fundamental differences separating Illinois from most of its neighbors.
Illinois is more reliant on agriculture, construction and mining machinery manufacturing, as well as management, technical consulting and securities and investments. Michigan, Ohio, Indiana and Wisconsin are as much as five times above the national average in terms of motor vehicle-related manufacturing. In a touch of political irony, the controversial federal bailout of the auto industry during the Obama administration appears to have helped prop up population in those Republican-leaning states.
The effects of well-known negatives in Illinois, such as chronic deficits, unpaid bills and pension shortfalls, are more difficult to quantify. But it’s clear there is a re-shuffling of the state’s demographic deck, occurring in ways that don’t fit neatly into a TV attack ad.
“If you look at a rural county in Illinois, it’s almost like any other state, where they’re losing just like the Illinois county is,” Paral said. “Illinois, though, is both unique in its total population but with very different things going on.”
“Black population growth and immigration growth used to offset the white decline,” Paral said. “Not anymore.”