I lived in Chicago for 15 years, having relocated there from Dallas in a job-related move. I enjoyed living in the northwest suburbs of Chicago. It was in the top 30 wealthiest zipcodes in the country. I was close to two Forest Preserves, land that is set aside for nature, one which was 31,000 acres, taking walks in them on a regular basis.
I worked downtown Chicago for several years. I thoroughly enjoyed how the downtown was decorated for Christmas with all of its gleaming lights. In the spring I would go across to Millennium Park and walk through the acres of colorful flowers and listen to the concerts. I would shop in downtown, or go to one of the great restaurants, or even take a noon-time trip to Barnes and Noble. There was always something to do there.
While I didn’t enjoy the 90-minute commute, aboard a very noisy train, it did give me a chance to read, listen in write. One year I read 50 books, the next year I listened to 246 business podcasts and the following year I wrote the draft of my first book. I enjoyed the area I lived so much, I planned to retire there making that decision a few years after settling in the area.
Why I left Chicago
However, based on what was occurring with the city, the county (Cook) and the state finances, I became concerned.
First, in 2011, the state of Illinois improved a “temporary tax increase” in 2011.
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Myth: The temporary 2011 tax increase was necessary to pay down Illinois’ backlog of bills, stabilize the state’s pension crisis and strengthen its economy.
Fact: Since the tax increase was passed, Illinois’ unpaid bills and pension debt have grown, and the state’s economy is among the worst in the nation.
Illinois lawmakers in January 2011 pushed through a record income tax increase that raised the income tax rate on individuals to 5 percent from 3 percent, and on corporations to 7 percent from 4.8 percent.
Within 3 years, $18 billion had been raised from the hard-working people of Illinois. This temporary tax in still in effect, a decade later. How many billions have been collected during that time?
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In the spring of 2015 “Chicago took yet another hit Tuesday when a major credit rating agency downgraded much of the city’s debt to junk status”. The article went on to say, “Ciccarone noted (Moody’s rating) that his firm’s data showed Chicago’s junk status rating is a level only reached in recent history by one other major city: Detroit, before it filed for bankruptcy in July 2013.
In 2020, the state put a progressive tax rate proposal on the ballot to raise the highest rate to 7.99%. https://www.illinoispolicy.org/what-illinoisans-need-to-know-about-the-progressive-income-tax/
It gets worse. Illinois has been underfunding its public pension fund for years. 70% funding is considered anequate for funding pension funds. It doesn’t need to be 100% because the investment returns will make up the difference. “At 23.3%, Illinois has the third-lowest funding ratio for its pension system in the United States,” in a December 2021 article.
https://www.gobankingrates.com/retirement/planning/best-and-worst-states-for-pensions/
Moody’s a debt rating agency said, “ Illinois‘ pension debt reached an all-time high of $317 billion as of June 30, 2020.” If that isn’t bad enough, the pension system was forecasting a rate of return of 7%, normal for funds that invest in the stock market, but the “ the largest of Illinois’ five state pension systems, the Teachers’ Retirement System, reported a 0.52% return on investment in fiscal year 2020.” The S&P 500 price index returned 15.76% in 2020. Talk about incompetent! Simply putting the retirement money in a basic S&P 500 index fund would have returned 15% and the Illinois pension fund has ½ of 1 percent return! And this mismanagement will be paid for by the Illinois taxpayers.
My current state, Wisconsin, has a fully funded pension system (100%) and its pension system is in the best financial shape of any in the country.
What does that all mean. My current state doesn’t need to raise taxes. However, Illinois will have to raise taxes dramatically over the coming year to make up for the shortfall. Already 30% of Illinois budget pays for pensions. Chicago is tied for the 2nd highest sales tax in the country at 10.25% and the 2nd highest real estate taxes in the US, at 2.27%, second only to New Jersey.
Raising tax rates (personal and business) will cause people to leave the state. ““Illinois is one of only two states losing population. . . Just-released data estimates Illinois’ population to be less than 12.6 million people — a decrease of about 79,500 people from last year. In the past decade, the state lost nearly a quarter million people.
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Illinois is not the only state losing population
The Wall Street Journal (WSJ) reported Dec. 22, 2021 that the state of New York lost 319,000 people in 2020 and California lost 160,000. What is common with all 3 states? High taxes.
Prior to this latest information from WSJ, it was reported that from 2010-2019 1.4 million people left the state, citing “rising taxes as the main reason for moving”.
“Major cities, such as New York, Los Angeles and San Francisco, have punishingly high tax rates and lack business-friendly policies. . . Wall Street executives previously relocated thousands of jobs to states outside of New York, in an effort to cut costs. Credit Suisse, Goldman Sachs, Morgan Stanley, Barclays, UBS, Citigroup, Alliance Bernstein and an array of other financial institutions have established and aggressively staffed hubs in Florida, North Carolina, Salt Lake City, Dallas, Nashville.” Once those jobs have left, they ain’t coming back.
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What does it Mean for You?
If you live in a well-managed, financially stable state, with low taxes, then count your blessings. However, if you live in a high tax state, consider taking action.
- Being a remote worker is no longer frowned upon. Find out your company’s policy on remote work and if you are able; move to a lower cost of living state.
- Become an entrepreneur with an online business and live anywhere in the world. I compared costs of living in places like Phuket, Thailand (a resort area) and compared it to Chicago, IL and Chicago cost of living is 118% HIGHER than Phuket. While it is true the average Thai doesn’t make a lot of money in the country, if your income source comes from outside the country, you can live like a king.
The key here is to take action. As much as I liked Chicago, the trifecta of Chicago, Cook County (where Chicago resides) and the state of Illinois all being broke means I had to move or have my lifestyle degrade because all my money was going for taxes. If you are in the same situation; move!