When The "Money" Leaves {Part II}

As I said yesterday,  all "the Money" from home  we met in Florida was done with Illinois.  

For some it was the fiscal situation up home.  One fellow told me that he and his wife had decided they were moving regardless of how Illinois voted for the constitutional amendment last fall to allow graduated income taxes.  {The amendment failed}.  For others the tipping point was the upsurge of crime, the riots and how local authorities seemed powerless to get a handle on it.  One person told me a particularly harrowing tale of what had happened around their business during the Kenosha riots and how that cemented their decision to put the business in their kids hands and leave.  The State's response to the virus was the decider for another I met.  All of them had seen too much and they were done.

Snowbirds from the north have long been a fixture in places like Arizona and Florida.  Most of these Illinoisans in the past haven't completely cut their ties to home.  Changing states solely for tax purposes requires a series of hoops to be walked through, the principle one being residency.  Residency in  general requires proof of domicile in the state in question.  One of the principle requirements is you reside in the new state for at least six months and a day.  For most of us in the Chicago region, 181 days in Florida or Arizona are a lot.  It's too hot.  Right now as I'm writing this we have at least two feet of snow on the ground and the thermometer will be lucky to hit 20 degrees as a high over the next week.  It's easy in February to pine for warmer days.  But for most of us the weather we want is what we get in mid-spring or the six weeks after Labor Day.  Warm but not too hot days, cool nights and relatively low humidity.  More people up by us hate the sweltering heat of the dog days more than the ice box we're in now.  It's hard to go six months in Florida or Arizona and avoid oppressive heat.  Weather is a big factor then, as is dealing with everything that is new and different.  Therefore it traditionally takes a lot for us to cut that final cord to all that's familiar.   "A lot" seems to have finally come about for many.  In particular a lot has finally come about for the type of people the state can least afford to lose from a financial standpoint.   

One thing the "Money" can often understand is basic financial math and those that can't hire people that do.  For those uninterested in finances there's attorneys, accountants and people like me to help explain things.  The cumulative effects of bad fiscal policy, syphoning tax dollars into nonproductive expenditures and away from areas that desperately need the cash have taken their toll on the "Money" crowd, for they realize that there's no amount of tax revenue governments can collect that will fix our problems.  As one person put it, "the only thing Illinois is good at is collecting taxes".  The crime is a secondary, but now major concern as well.  Finally, this crowd is tired of being scapegoated for every problem or social issue, both at home and nationally.  These people know they can't win any argument regarding these crucial societal problems so they shut up, and plan to move.

The "Money" doesn't throw a goodbye party when it leaves town.  Its basic instinct is to be hidden and so it leaves quietly as well.  In fact it leaves so quietly that you might not even know it's gone.  The family home in Hinsdale may still remain home base for the few months when a couple chooses to come back north  after completing their residency requirements.  Or the Lake Forest couple chooses to buy a smaller townhome near the daughter who's settled in the town next door.  You might still see them at local restaurants, church or synagogues when they're back home.  Maybe you'll play a round of golf with them in the summer at their club.  Also, there's multiple ways in the modern world for them to stay in touch with friends even from far away.  While these couples may show up for all the important events, like their neighbors holiday party when we can have these again, make no mistake.  They may occasionally return to their old haunts but their money's gone.  It's left for places that treat it better.  Florida qualifies.  No state income tax in Florida, also as important to the money, there's no Florida estate tax.  

What is hard for many, but in particular it seems hard for the political class to understand is when the money goes so does the tax base.  That's not a popular thing to say but it's the truth.  One gentleman laid it out to me as we watched the sun go down.  According to him, he paid last year nearly $100,000 in state income tax.  That'll be gone now that he's no longer a citizen of the state.  How many people in Illinois pay that kind of money in state taxes?  The answer is very few.  Half of Illinoisans pay no state income tax at all.  He went on to say that his property taxes {$45,000} are a wash to governments because somebody already bought his home.  But the lion's portion of the sales taxes he pays are now going to the state of Florida and now that they've moved he anticipates an increasingly larger percentage of what they give to charities to now go to their new local community.  Nobody tallies that type of loss.  And when both he and his wife are gone that money that he'd have paid in Illinois estate taxes will go to his kids and not to the state's coffers.

Money goes where it's treated best.  Always has and always will.  What was true in the time of the Romans remains true today.  States like Illinois don't want to acknowledge this uncomfortable fact but their citizens are voting with their feet.  Whether it's crossing the state line and moving to Indiana or moving far away, the money is fleeing, never for the most part to return except perhaps to be buried.  What will replace it is unknown.  Chicago and its surrounding region has traditionally been considered the business hub of the Midwest.  Perhaps that will continue to be the case.  Maybe all of Chicago's historical advantages will come to the fore again once we are free of the most devastating effects of Covid-19.  Perhaps new industries as well as a new class of entrepreneurs will emerge with the city and our region regaining what it was.  

Yet one must wonder.   

We now live in an era where businesses have learned how to disperse and operate all over the country.  We're living in a time  where for many reasons one can have a better quality of life elsewhere while still working for a Chicago based or regionally based business.  Up in the Chicago region we're plagued by so many social and economic issues where there seem to be no easy answers and we're ruled by a political class that either cannot or won't address the fundamental causes inherent to each.  Given all these things one has to wonder who replaces all those that have  left or will leave.  In a state losing population with what many consider an unfavorable business climate, who or what replaces the tax base that is moving away?

For the "Money" is leaving.  Make no mistake about that and if I'm correct more will soon follow what's already walked out the door.  One of the people we met was hosting a friend from home whom they were trying to convince to make the move.  From what I could tell that pitch had been made and accepted.  My guess is it won't take much to convince many more in the next few years unless things change.  

Hope I'm wrong.  Don't think I will be.