“Which [Chicago] suburbs are income tax givers and takers?”

The Daily Herald looks at income tax info to figure out which Chicago suburbs are giving or getting more money:

As a whole, the suburbs are more giving than Chicago and much of downstate when it comes to redistribution of income taxes, but individually the suburbs are a mixed bag, based on a Daily Herald analysis of Illinois Department of Revenue and U.S. Census Bureau data.

That’s because taxes are paid to the state based on wages earned, but the amount returned from the state is a fixed amount per resident…

This state’s income tax redistribution policy means some suburban areas like parts of Aurora got back more than 25 percent of what residents paid in income taxes, while other areas like Oak Brook and Barrington received less than 2 percent of the income taxes workers there paid…

Taxes on higher incomes cover not only the local share but also a bigger portion of the cost of operating the state. The distribution of the income taxes helps ensure all parts of the state have the resources to operate effectively, experts said.

The article makes it sound as if the experts generally agree that this is the way it should work: income taxes are paid and then the money redistributed to help provide services for others. Yet, isn’t this sort of analysis suggesting that this may not be “equitable”? The real question lurking here is what would be equitable and whether people should be getting back in services exactly or close to what they paid in. There is some disagreement here, illustrated by one Oak Brook official:

“Every municipality hopes to receive more than it currently does,” said Art Osten, Oak Brook’s interim village manager. “The reality is that the distribution of taxes collected by the state is a political question. We hope the determination of need and reallocation is done in a reasonable and equitable manner and that Oak Brook receives its fair share of what its residents contribute.”

On one hand, communities all want more tax money back and discussions in Illinois to lower the amount returned to municipalities would be met with resistance. On the other hand, Oak Brook wants its “fair share.”

Example of problems with statistics “nearly 1,500 millionaires” (out of more than 235,000) “paid no federal taxes”

Statistics can be used well and they can be used not so well. Here is an example where the headline statistic suggests something different from the rest of the story:

Of an already small pool of millionaires and billionaires, 1,470 didn’t pay any federal income taxes in 2009, according to the Internal Revenue Service.

Just over 0.1% of taxpayers — or 8,274 out of 140 million total — made more than $10 million in 2009, according to the agency. More than 235,000 taxpayers earned $1 million or more, according to a recent report from the agency.

But of the high earners who avoided paying income taxes, many did so due to heavy charity donations or foreign investments.

About 46% of all American households won’t pay federal income tax in 2011, many due to low income, tax credits for child care and exemptions, according to the nonpartisan Tax Policy Center.

The headline makes it sound like there are a lot of millionaires who are avoiding paying taxes. The actual percentage hinted at it in the story suggests something else: less than 0.63% of all millionaires (1,470/235,000 – less than 1 in a 100)) paid no taxes. In the midst of a political debate about whether to raise taxes for the wealthy in America, each side could grab on to factual yet different figures: the 1,500 figure sounds high like the country is missing out on a lot money while the 0.63% figure suggests almost all pay some taxes. It wouldn’t take much to include both figures, the actual number and the percentage in the story.

Examples like this help contribute to the reaction some people have when they see statistics in the media: how can I trust any of them if they will just use the figures that suit them? All statistics become suspect and it is then hard to get a handle on what is going on in the world.

About that New Jersey radio ad running in Illinois and asking businesses to relocate

On the drive home from work last week, I heard a new radio advertisement where New Jersey governor Chris Christie appealed to Illinois businesses to take advantage of New Jersey’s business-friendly climate. The typical appeal was made: possible tax breaks or incentives, proximity to New York City and other notable cities, and an able work force await in New Jersey. Hear the ad here. (And New Jersey is not the first state to make an appeal in Illinois since Illinois raised its personal income and business tax rates.)

On the question of whether such radio advertisements actually do draw businesses to another state: I would guess that the success rate is low. In fact, perhaps the main goal is not to attract businesses from Illinois but rather to alert New Jersey residents that the state government is doing all it can to attract businesses and jobs and that it has a good business climate compared to other states. States have certain options by which they can attract jobs or make direct appeals to businesses and an opportunity like this, where a state notably raises taxes, presents an opportunity to make a comparison.

A few other pieces of information would be helpful in interpreting this advertisement:

1. How exactly does New Jersey’s business climate compare to Illinois in areas like the tax rate, labor force, etc.? How many businesses have moved back or forth in recent years?

2. Is Christie’s ad politically motivated? Here is a chance for a Republican governor to tweak a Democratic state.

h/t Instapundit

How other states see Illinois’ income tax hike

The news this week that Illinois will have higher personal income and business taxes has spread to nearby states. According to this AP report, “neighboring states” are “gleeful” over this news:

Neighboring states gleefully plotted Wednesday to take advantage of what they consider a major economic blunder and lure business away from Illinois.

“It’s like living next door to `The Simpsons’ — you know, the dysfunctional family down the block,” Indiana Gov. Mitch Daniels said in an interview on Chicago’s WLS-AM.

But economic experts scoffed at images of highways packed with moving vans as businesses leave Illinois. Income taxes are just one piece of the puzzle when businesses decide where to locate or expand, they said, and states should be cooperating instead trying to poach jobs from one another.

“The idea of competing on state tax rates is . . . hopelessly out of date,” said Ed Morrison, economic policy advisor at the Purdue Center for Regional Development. “It demonstrates that political leadership is really out of step with what the global competitive realities are.”

A few thoughts:

1. Mitch Daniels watches The Simpsons? Might this admission hurt his possible presidential run or would it help him sell a hipper image? In the minds of some, perhaps where the analogy breaks down is that the Simpson family always seems to turn out all right in the end.

2. Income taxes are just one factor that businesses consider. I would like to read more about this at some point. For example, the conventional literature on suburban development suggests that low taxes is one of the reasons that residents and businesses decided to move out of the city in the first place. It would be helpful to know what are the “most important” factors that businesses consider – is income tax a lesser factor or a greater factor?

3. How many businesses will actually move to Wisconsin or Indiana or elsewhere and is there a way to predict this? It is true that Americans can vote for certain policies or actions by moving. Taxes may even be part of the reason the Sunbelt has grown in population in recent decades. At the same time, there are other factors beyond taxes that anchor people or businesses to certain places. I was intrigued with this question when living in South Bend, Indiana. Some people said they couldn’t wait to leave. Others wanted to stay. What pushes people (or businesses) to the point where they actually will move? Moving is not an easy process – it requires quite a bit of change and money (though money might be saved in the long run).

3a. The opinion of Wisconsin or Indiana held by Chicago area residents is often not the highest. Are these tax increases enough to push people toward places that they chose not to move to before?

3b. Is this “gleefulness” from other states tied to larger issues other states with the state of Illinois?