On November 5, Illinois voters will be asked whether they support a “millionaires tax.” Here are three things to know about it: the tax can be easily avoided, it fails to provide stable revenue, and it discourages or limits economic growth.

The leaders of the State of Illinois are ask voters Nov. 5 for their opinion on imposing an additional 3 percent tax on incomes over $1 million to alleviate property taxes, but there are three things voters should know on this issue. State lawmakers are hoping they’ll be given the green light to impose the tax for real.

So what are they three things? First, the tax can be easily avoided. Second, it fails to provide stable income. And third, it discourages or limits economic growth.

High-income earners often have access to sophisticated tax planning strategies, allowing them to shift their income across state lines or exploit loopholes, thereby significantly reducing their tax burden. This boundaries the expected effect of the tax and weighs more on other taxpayers.

Wealthy individuals are mobile and can quickly settle down avoid higher taxes, which leads to a reduction in the tax base. Although this mobility varies, each tax increase encourages more people to seek better opportunities elsewhere.

Taxing millionaires can discourage investment and entrepreneurship, slowing economic activity and limiting job creation. As high earners move or reduce their investments, the local economy suffers and further widens revenue deficits.

In addition to these three questions, voters must remember that “millionaires” are not necessarily mansion dwellers. These are often family stores: 23,740 small businesses could be hit by a 61% increase in their marginal income tax rate.

Costs and taxes strongly influence small business decision-making. Higher taxes affect incentives, ultimately affecting innovationinvestment and growth. Translated: The state’s economy and job markets could suffer.

Although a millionaire’s income tax may make money in the short term, it ultimately results in long-term losses.

Massachusetts shows harm

A non-binding issue today may become public policy tomorrow. Massachusetts proved it when voters approved an additional 4% tax on incomes above $1 million in 2022. The effort began in 2018 with a ballot question like the one in Illinois.

The courts dismissed the issue for violating constitutional rules by combining taxation with the allocation of funds for education and transportation. A few years later, a revised proposal was adopted, imposing a substantial new burden with significant long-term consequences.

Massachusetts was already seeing its residents leave, resulting in a net loss of $4.28 billion of taxable income between 2020 and 2021. Boston University According to one study, if the trend continued, Massachusetts could lose $19.2 billion in adjusted gross income and $961 million in income taxes annually. What will keep Illinois from experiencing the same losses?

States like North Carolina are capture this migration with economic incentives – 6,781 people left Massachusetts for North Carolina in 2022. While Massachusetts increased its millionaires tax by 4%, North Carolina lowers its income tax rate to less than 4%, attracting more residents.

Illinois is already losing to its neighbors

Illinois already struggles with economic competitiveness and ranks poorly on tax indexes: 37th in the State Business Tax Climate Index, 35th in the state tax category of the Freedom Index in all 50 states and 46th in taxes on the Social Mobility Index.

Like Massachusetts, Illinois is losing residents and income to other states – more than 86,000 residents and $9.9 billion in 2022 alone. Increased taxation could accelerate this trend, pushing more people to neighboring states where government burdens are lower. Illinois’ neighbors – Indiana, Iowa, Kentucky and Missouri – all cut their income taxes and attracted residents from Illinois. In 2022Illinois lost 17,223 residents to Indiana, 7,972 to Iowa, 2,734 to Kentucky and 4,723 to Missouri.

Politicians such as former Gov. Pat Quinn are pushing for the millionaires’ income tax in Illinois, promising $4.5 billion in property tax relief. These promises ignore the tax’s potential to harm the state’s economic health by driving out businesses and high-income individuals, turning Illinois into a “Business desert”.

Although some say the proposal only targets personal income, this is not clearly stated in the ballot question. The fact is that business owners and their businesses are intrinsically linked.

A “millionaires tax” could have a significant impact on decision-making by discouraging new businesses and creating uncertainty for existing businesses. This distorts incentives to invest in businesses and punishes success. When business owners decide to expand or invest in Illinois, they can’t ignore the allure of other states offering lower taxes and greater stability.

The proposal introduces other forms of taxation that could disproportionately affect small businesses. A 2020 The analysis highlighted how progressive income taxes could increase small business taxes to more than 50.3%, putting undue pressure on these key job creators.

Small businesses, which often operate as pass-through entities, would see their owners’ income taxed at higher rates, significantly reducing their profitability and stifling their growth. This could lead to fewer small businesses surviving, a further reduction in the tax base, and a worsening of Illinois’ long-term economic stability. Small businesses have long been the largest in Illinois fertile source of jobs.

Only pension reform can reduce property taxes

Property taxes are skyrocketing in Illinois because they are the primary source of funding for the state’s ever-increasing pension obligations. Over the years, public pensions have increased significantly 140 billion dollars the gap between what the state has and what it will eventually need from taxpayers to meet its pension obligations. As these debts continue to grow, the pressure on property taxes increases. In the last five years alone, Illinois’ average property tax bill has increased by $756with some owners facing increases of more than $1,200.

Instead of addressing the underlying problem — the need for public pension reform — state lawmakers appear to be focused on finding temporary solutions to ease the property tax burden, like this tax about millionaires. But it only creates one tax to cover another and it is ineffective, billions of dollars short of providing meaningful property tax relief.

A recent study found that the tax would raise between $2.3 billion and $3 billion a year, less than the $4.5 billion predicted by its supporters. More importantly, this amount is well below the $6 billion to $9 billion needed to provide meaningful property tax relief.

As the study points out, even the maximum revenue it could generate could barely address the state’s pension crisis. This means continued tax increases as the pension crisis worsens, with no plan to solve the real problem.

Illinois must amend its constitution so it can curb the growing public pension deficit. Asking voters about a “millionaire tax” is just a distraction so they can continue to avoid a retirement solution, and a dangerous idea because it could hurt small businesses and drive out the very ones lawmakers are hoping for pay more taxes.