They say that embarrassment requires an audience. And it’s true. If no one sees something there is no reason to feel embarrassed about it. We can all re-imagine the horror of tripping in the lunchroom, tray aflying – even if we never actually did it. But envision the same thing happening alone at home. It may be frustrating and an ugly mess, but it is not embarrassing.
Now imagine – in either case – someone rushing to your assistance. Someone who helps you up and makes sure the mess is righted. A friend who knows you so well, that their reaction is compassion not schadenfreude. Someone who knows this shit happens to everyone but genuinely feels bad that it happened to you this time.
We need these people. We need friends with whom we can share everything. Not just the awesome, but also the awful, ridiculous, and gross. These are the people who can see us stumble and not illicit our embarrassment. These are the Not Audience.
Our not audiences can help us when we set ourselves on a difficult life journey. If we need to lose weight, go through rehab, kick an illness, or mourn a loved one, having a not audience can make the difference between getting it done and failing. We don’t just tell these people about all the awful shit we are dealing with. They make us feel stronger for having shared it. they remove the obstacles in their control. They lend their ears, their arms, and their shoulders so that we may struggle through, be stronger, and succeed.
Tasks in life are often too big for one person. Our need for help can not be undone by our fear of being embarrassed. That is why we need our not audience.
Did that headline hook you? Well, I was kidding. I can’t even come close to explaining the recent prices paid for NFTs. But I am pretty good at questioning what I see and can perhaps shed some light on their true values. And if you have never heard of an NFT, keep reading. I will explain them in a bit.
This whole quandary started when Nyan Cat (see image) sold for $800,000 in March. That’s right, a digital gif that was created a decade ago and until recently would have been considered absolutely worthless by everyone from a seasoned investment manager to my 9-year-old daughter, sold for nearly a million bucks. In explanation, the Wall Street Journal paraded a crypto expert who explained that much like da Vinci’s signature on the Mona Lisa guarantees its value, a digital file associated with Nyan Cat guarantees that this is the original Nyan Cat sold by the original artist and hence has value. Many investors bought this pile of cheese. I only saw holes.
This digital file is called an NFT. It is a nonfungible token or blockchain-based digital device that is associated with an asset. This device stores the data about the asset in a permanent and noneditable ledger somewhere. That data will include originator and date of creation as well as records of subsequent ownership and information specific to the asset. The asset is generally but not necessarily digital itself.
An NFT is like a label in a sweater. It tells the manufacturer, country of origin, cleaning instructions, maybe the collection year, and if your mom is doing her job, it has your name on it. It is all valuable information, but if the label comes off, you can still wear the sweater just fine.
So the Nyan Cat sale included the original artwork as well as a permanent record of the date created and the name of the artist. Or that is what we are told. Neither of those things is fully true.
An NFT offers no guarantee that this asset was created by anyone in particular. All it purports is to know is the name of the NFT’s creator, and when the NFT was associated with the artwork. Nyan Cat’s NFT only works because it echoes the pre-existing trademark, something decidedly low-tech.
Second, the NFT offers no guarantee that this is the original Nyan Cat. “Original” is a tricky concept in digital art. Many copies are created and sent around during creation and the final original version is not the same as the one that is optimized and distributed. Furthermore, the internet is rife with authentic variations of Nyan Cat in all sorts of different costumes and situations that predate the NFT. The NFT promises to know when it was created and associated with the artwork, but not when the artwork was created or if it’s the original version.
Similarly, an NFT does not guarantee Nyan Cat’s value. To point out the problems with the WSJ’s example, the true value of the Mona Lisa is a function of the quality of the painting, the name of the artist, and the work’s importance in history, not a verified signature. Nyan Cat exhibits no artistic quality. It is cute and ironic but lacks artistic merit or conceptual depth. And the artist is certainly not as famous, nor has the cultural significance of many artists whose work sells for far less – take Salvador Dali or Frida Kahlo for example.
The NFT doesn’t even solve a needed problem. Like an authenticated signature, Digital art has had a mechanism for guaranteeing authenticity since the late 90s (and a Sol Lewitt wall painting decades earlier). When a video painting by digital artist Jeremy Blake was purchased in 1999, it came with a certificate of authenticity signed by the artist. There are many ways to view and share his work. Some may even be available on YouTube. But only holders of the certificate of authenticity can sell the work. This is an equally faithful guarantee of the artist’s hand and the work’s origin. Unfortunately, there is no stampede to collect digital artwork with a paper certificate of authenticity (said the guy who owns several Jeremy Blakes).
Since we are running out of explanations, one might wonder if the actual NFT and its connection to a rare blockchain has value. Like how gold from an ugly piece of jewelry can be melted down and used to make a nicer one. This is a reasonable explanation until one remembers is that NFT stands for non-fungible token. Nonfungible means it cannot be exchanged, and this NFT, by intent of creation, has no other possible appropriation or value outside of its designated context. So nope.
In the end, I am pretty sure that the price realized by Nyan Cat was a function of NFTs being novel and some unwarranted purchasing momentum for crypto-based assets. In other words, it is a bubble. If you are considering jumping in, beware. Fundamentals might not be the thing that drives an investment’s price in the short-term, but they are always what drives its value in the long term. Understanding the difference is not hard but anticipating when it will pop can be.
COVID has sucked. If you are involved in the hospitality industry, supporting workers in their offices, or in a face-to-face service role, it is likely that your position has been upended or eliminated. Many of our favorite restaurants have not been able to weather the reduction in cash flow and closed their doors. The dry-cleaning industry, only recently recovered from the impact of municipal smoking-bans, has seen 50% of its stores shutter. And elegant office buildings cannot give away office space.
A telling, if bizarre, poster hung outside one of our favorite COVID-closed restaurants.
Yet there are opportunities in COVID. Many companies are rethinking the changing needs of their customers or identified emerging markets and making clever pivots. The element that most success stories have in common is the elimination of intellectual obstacles.
The more common physical obstacle does not care about COVID. The speed of light has not changed. Trucks cannot carry any more than before. Solar and wind energy have not gotten any more efficient. And the human body still breaks down in the same ways. But obstacles that existed because people believed they should exist have been turned on their heads.
The most obvious example is the previously maligned and decades old video-meeting industry. Sales managers used to be adamant that a face-to-face meeting should never be replaced with a phone call. Executives were certain that zoom-meetings were unreliable and ineffective. Yet now both have been forced to learn, embrace, and acknowledge the efficacy and efficiency of phones and computers to conduct live meetings.
Tele-medicine is another example of an industry that has taken advantage of the removal of intellectual obstacles. The American Medical Association and government regulators consistently blocked this industry’s advance on the grounds that face-to-face medical conversations and state-specific licensing of doctors were superior and required. But both of those written-in-stone objections dissolved like Berry-Blue Jell-o in a swimming pool once it was realized that patient visits spread the disease and placed doctor and patient at risk.
Intellectual obstacles have fallen in the medical industry in the past. Once the idea of a home pregnancy test was opposed. It was well-regarded that a positive test needed to be accompanied with a conversation on prenatal health and best practices. But a private little revolution happened in the early 80s and health experts came to realize that early pregnancy detection was more important than informed pregnancy detection. Still, most tests that can be done at home are not allowed. Expect advancements in COVID home-testing to pressure the elimination of that obstacle across the field.
Another observable example of the elimination of intellectual obstacles is the relaxation of laws surrounding outdoor dining. Restaurant owners and politicians once accepted the agreement that sidewalks should never be blocked by tables, bus stations or any private business’s object of necessity. Table distance, property lines, and fencing were written into law and fiercely regulated.
But with COVID came the upset of that intellectual obstacle. Even the fiercest regulators understand that haphazard outdoor dining may be the only chance most restaurants have to survive – and they agree that their community is better off with restaurants! The creative things restaurants in my neighborhood have done would have been unthinkable a year ago. Plastic igloos completely block sidewalks sending pedestrians into the street or they sit in the street sending traffic around. Others have placed tables on land they don’t own or was inappropriate for dining. Non-code garden sheds, portable cabanas, and makeshift tents now house space heaters, picnic tables, and cute wintery decorations. In some cases (i.e., Camp Lottie’s) what restaurant entrepreneurs have come up with is better than what they had before COVID!
These examples do not just represent a few specific changes to age-old ways of doing things. They represent a change in the way business leaders should think about improving sales, efficiency, and finding new markets. Almost every rule that was once sacred is now open for discussion.
What should you do? Question, Try, Invest.
Successful leaders will not pass on this opportunity. Look at your business model, the way you produce, and the way you sell. Where are the intellectual obstacles in your system? What rules might not matter any-more? Engage your regulators and learn where they have moved the lines. Then consider challenging them to move the lines further. Think about how once unacceptable technology interfaces or automation can be implemented.
Once you have identified potential soft spots in the metaphorical walls limiting your operation, try to pierce them. Build a cheap app that avoids face-to-face contact and coincidentally also reduces costs. Try an automation idea that prevents COVID transmission even if it displaces a job. Test the waters vertically and horizontally. Throw a picnic table onto the sidewalk. Break some rules. See what takes.
And finally, make bets on what you have learned. The successful companies are going to come out of COVID with a business model that takes them in fundamentally different directions. They will discover that once half-baked acquisitions are now clever. They will learn that the time until positive ROIs, once measured in years, can now be measured in months.
You know that adage “change or die?” It’s never been truer. There may only be three paths forward: become a change leader, become an acquisition target, or go away. Which road should your company be taking as you navigate your way out of COVID? If you would like assistance with your business’s strategic direction, email me. and we can set up some time to talk.
You know the fish is rotting when the only thing keeping the head on is the self-protestation of the most powerful man in the State that he has “not been charged with any crime.”
Today, Mike Madigan announced he is suspending his campaign to be re-elected Illinois Speaker of the House. Apparently, if I read the Crain’s blurb correctly, the House Democratic Caucus has been unable to find the 60 votes needed to reelect him and has suspended his campaign.
But he is not gone yet. He still plans to keep his seat on the legislature and pulls the strings on just about every other foreseeable candidate. Furthermore, his wording suggests that as the only viable candidate, he may retain the position even without a campaign.
But that’s not the worst of it. His power is not limited to any of his offices. He will continue to hand select the majority of Illinois lawmakers until his death, and even after that, his cronies and purchased allegiances will keep the wheels of his machine running for as long as the benefits and money keep flowing their way.
Donald Trump would have destroyed our Nation’s democracy, but he did not. In the end, he made a hell of a mess, but will leave Washington without spoils. The Constitution of the United States is a tough boss.
Mike Madigan on the other hand has been riding the Illinois Constitution to his advantage his entire career. He uses his position as State Finance Chair to enforce his political agenda. He has purchased the allegiance of major voting-blocks with taxpayer-funded promises. Large corporate and union donors have repaid his favors with a war chest that keeps detractors out of office and punishes those who fail to toe his line. He controls the legislature’s ethical investigations and ensures that they never point toward himself. And he has been instrumental in eliminating the two-party system in Illinois – a handicap of which my left-leaning friends fail to appreciate the significance. No one has been more successful in undermining democracy anywhere in the United States than Mike Madigan has been in Illinois.
It is time for a couple new bosses here in Illinois.
We all know the famous Mark Twain line: “There are three kinds of lies: lies, damned lies, and statistics.” That and the adage that one can find a statistic to prove anything may suggest that statistics are just untrustworthy.
In fact, measurement and analysis – the fundamentals of statistics – are the only honest way to understand a full story – with the caveat that the numbers and the methods for their collection are understood and sound.
Stand-alone numbers rarely help one understand an event. If I told you that 7 people in the room had hats, you would know almost nothing about the situation I describe.
A nice hat.
But ratios are more descriptive. If I told you that 7 out of 100 (7/100 or 7%) of the people in the room had hats, you would know that most people were not wearing hats. The picture is more clear.
Even better is the time series. If I told you that 7% of the people in the room were wearing hats and that at last year’s event, 14% of people wore hats, you would know that the number of people who wear hats is small and fell year to year. You would have a a story about what was happening with the hats.
But this still isn’t enough. We also need to know how the numbers were collected if we are to trust the story they tell. If the number of people in the room was measured at lunch time one year and during the heart of the event a year later, we would have little confidence in the number of people the room. Similarly, if the hats were counted on heads one year and inside the coatroom the other year, we would not have confidence in the number of hats.
Some fellows have hats. Some do not.
Furthermore, it is important to discount any data that may be biased. If our hat statisticians offered a reward to ensure participation, they likely introduced selection bias (as mentioned in yesterday’s post). They likely missed the number of hats in the room and ended up with the number of hats worn by people who liked the reward. Imagine how different the results would be if the reward was a hat pin (a bias toward those who liked hats) or a tube of sunblock (a bias toward those who do not wear hats).
Back on point, here’s a great example demonstrating how COVID Infection Rate will be impacted by selection bias. As we approach this year’s flu season the infection rate is likely to go down even though the number of people infected with COVID stays the same or increases. The reason is that flu symptom confusion will lead more people to seek out COVID testing. This bias could dramatically increase the number of tests (the denominator) leading the infection rate to fall irrespective of the number of people infected.
Summing up, the clean numbers are, fatality rate, hospital beds (available and filled), and population size. Ratios and time series that include these numbers will help us correctly analyze the situation. However, ratios that include biased numbers such as COVID Infection Rate should be avoided. No matter how often the Governor repeats it, it does not describe the picture we are seeing.
Recently we have been hearing a lot of talk about the infection rate in Illinois. The growth in this number is quite shocking. Where it was 3% a month ago, it was 5.7% last Thursday, and it is 8% as of this writing!
Figure 1 New cases in Illinois (Bing’s COVID Update)
One might be led to believe that this means that 8% of Illinoisans are infected with COVID, but it does not. It means that 8% of those tested were positive. Those are wildly different things and the actual percentage of Illinoisans with the disease is something different. It could be higher and is likely much lower. Its rise could indicate a growth in the general infection rate or nothing at all. Residents of Illinois – more than almost any other state – need to be able to read between the lines recited by your officials.
I am not a conspiracist or an anti-science guy. Furthermore, I believe that the number of people catching COVID in Illinois in increasing rapidly and is cause for concern. However, my knowledge of science (and statistics in particular) leads me to worry that our elected officials are incorrectly interpreting “positivity rate” and ignoring more appropriate statistics altogether when making policy decisions.
Let us return to the early days of COVID. Initially the positivity rate throughout the Rush Medical System started in the 8% range. Within a couple weeks, that number had spiked to 25% This was consistent with what was reported in the press. The overall rate of infection in the state was unknown, but this number jumped because, given the shortage of tests, doctors began screening for symptoms before allowing a test to be administered. So, if a patient was asymptomatic or wanted a test to placate personal or professional curiosity, the request for a test was denied. Only the people who were likely sick or front-line were tested. The infection rate of all Illinois was well below 1% at the time, but the 25% (and rising) infection rate measured meant that the tests were being used more effectively.
Post-it note captured at a Rush nurse’s station in April 2020
At some point the purpose of the this statistic was corrupted. The number is easy to track and regularly reported and it has come to be used in a way that was never intended. Testing issues have improved since then, people who are sick are still more likely to seek out testing and doctors are more likely to prescribe testing to symptomatic patients. Further complicating the issue, certain professional and demographic groups get tested more than others leading to overall results that do not match the population. In statistical terms, this is called selection bias. So, when you hear that the infection rate is 8%, understand that there is no scientific or even commonsense reason to equate that to the whole of Illinois, Chicago, or any geographic group.
Even though the positivity rate has risen 1300% since June, the fatality rate has fallen by 80% since the first peak
Still, there are important stats worth watching. My favorite (as macabre as this sounds) is fatality rate which – due to research, improved medical infrastructure, and improved treatment – has fallen consistently throughout COVID. On the first pandemic peak on May 13, 4100 people tested positive and 141 people died. On the second peak in October, 6100 people tested positive and 63 people died. This stat is not perfect either, but still, a positive test in May represented a 4.7% chance of death and a positive test in October represented a 1.0% chance of death. So even though positivity rate has risen 1300% since its low point in June, the chance of dying has fallen by 79% since the first peak. This is a reason to rejoice, not retreat further into our fears.
Figure 2 Fatal cases in Illinois (Bing’s COVID Update)
Perhaps the best statistic available is deaths per 100,000 people. This stat cleanly identifies one’s likelihood to die from COVID and is calculated using the relatively bias-free numbers of population and COVID deaths while avoiding the sample bias of testing. Illinois’s current D/100K number is 78. That number sounds arbitrary but makes sense when used for comparison purposes. Remember our Mayor villainizing that COVID hotbed, the State of Wisconsin, a few weeks ago? Yet Wisconsin’s number is only 32. For whatever reason, Illinoisans have over twice the chance of dying from COVID than their neighbors to the north. Iowa’s number is 53, Indiana’s is 62, and Missouri’s is 47 – suggesting that all neighboring states are safer than Illinois. In fact, Illinois is and has been one of the top 10 most dangerous states as a function of COVID. Pile crime, politics, and taxes on top of that and start wondering why anyone lives here – but that is a subject for another day.
Figure 3 Death rates from COVID-19 as of October 28, 2020, by state. For the complete chart, follow the link above. (Statistica.com)
I have been frustrated by misdirected, arbitrary, or politically motivated COVID policy since the beginning. I am not arguing that COVID is not dangerous. I am not arguing that people should not be diligent. I am arguing that Illinois officials are looking at the wrong data, looking at data incorrectly, and in too many cases expecting the public to accept “because science says so” without understanding the science themselves.
This issue has unfortunately been politicized. Please, do not reject my logic because it coincidentally aligns with the politics of others you oppose – some of whom you view as idiots. All the links to these numbers are included above and none of my sites have any political bias. If you wish not to believe me, click through and do your own research.
Two of Springfield’s most trust-worthy politicians
Over the last two weeks I have published a bunch of posts outlining my opposition to the graduated income tax amendment or as our Governor incorrectly calls it” the fair tax amendment.” You can read them here. What I’ve realized as a result is that its even simpler than I thought. So, channeling Douglas Adams, this is my 5th post in my 4-part series.
In order to understand the Governors proposed tax program, it is important to separate his twovery separate proposals. The first is an amendment to the Illinois constitution which grants lawmakers sweeping new powers to change the way Illinois citizens are taxed. The second is a legislative proposal indicating how the amendment will first be used to increase taxes for some and lower taxes for others.
We have all heard the TV ads within which proponents of the “Fair Tax Amendment” talk about increasing the tax rate for the top 3% of earners and reducing it for everyone else. Yet the new wording proposed for the Illinois Constitution doesn’t mention top-3% this or tax-cuts that. These details are not part of the amendment. The Governor’s proposed amendment very simply removes the flat tax requirement and allows the legislature to increase – or lower – taxes on any group at-will.
The Governor’s second proposal is to use these new legislative powers to immediately increase taxes from 4.95% to 8% for earners making more than $250,000 per year and to decrease everyone else’s tax rate from 4.95% to 4.9%. This, he promises, will 1) ensure that rich people “finally pay their fair share” (his words) and 2) eliminate the State’s deficit, leading ultimately to a reduction in the State’s debt.
We need that first one – the constitutional amendment – before the benefits of the second one – the legislative proposal – are possible. Unfortunately, those two benefits still aren’t possible as currently written. Only one can be true – and the governor knows it.
If you dig in (math shared at end of post), you will see that the numbers associated with the Governor’s program do not come close to eliminating the deficit. That “finally fair tax program” will only increase the State’s revenue by $3 billion – far short of the $6 billion annual deficit. As a result, the State will need to continue borrowing, at higher and higher interest rates, and the debt will continue to grow, and the State’s financial situation will continue to worsen.
OR…on the other hand, with the new legislative powers that the amendment provides, the State could say “to hell with fair and promises,” and legislate increases large enough to reduce the debt. The Governor’s tax rate details are not written in stone. The Legislature could enact them for a year and pick something much more aggressive the following session or just scrap the promises altogether and raise rates across the board now.
So what gives? Is the Governor trying to enact a tax program that is finally fair, or use the amendment to raise taxes to pay-off the State’s debt? The answer is likely neither.
Opponents of the program – and even some supporters – recognize that the Amendment marketing has not been completely honest. The Governor is looking for an additional revenue stream, and this amendment gets him one. It is understood that, the increased revenue will be directed at regular state services (including unchecked inefficiency and graft) and reduce borrowing. Despite promises, it was never intended to fix underfunded pensions or eliminate the deficit. It is a short-term solution to generate cash and in a few years it will be absorbed, Illinois debt will be pushing $80 billion, new sources of revenue will be needed, and that tax amendment will be right there, all warmed up ,and ready to facilitate another round of tax increases, this time much less “fair” and more widely shared.
The amount of money our state needs is big and growing and the three percenter’s pie is just not big enough to solve the problem. Everyone from middle-class on-up will eventually pay a higher rate as a result of this amendment. The usual suspects (Increasing debt service, unfunded pensions, growing entitlements, ballooning – yet ineffective – police departments and school districts) will continue to put pressure on coffers. Tax rates will rise for everyone, additional tax tiers will be introduced each with its own tax details, and 50% or even 100% of retirement income will be taxed at regular income levels. Within three to ten years of this amendment’s passage all Illinoisans will be paying higher state taxes, and some may be paying twice what they pay today.
“So, Jackass,” as my detractors may ask “what is the alternative? We can’t do nothing and isn’t this something?” Nope! The act of creating less than nothing does not make it something! Educated voters need to discern between programs which improve the fiscal health of our State and those that hurt it – regardless of promises. A tax amendment that is sold on the promise of reducing the state’s debt but in fact increases the state’s debt is not a step in the right direction. It is not something.
But, as Crain’s (I think?) pointed out last week, there may be a silver lining here. The failure of this amendment may signal a step forward for the Governor. Prior G, Bruce Rauner’s, message to state legislators was clear, if you can reduce waste, demonstrate commitment to fiscal responsibility, and pass pension reform, Illinoisans will pass a bipartisan tax increase. Before coughing up cash or turning over additional power, Illinoisans deserve proof that our legislators have turned the corner on governmental waste and that buying votes with taxpayer dollars is no longer acceptable.
If a failed graduated tax amendment in 2020 was followed by graduated tax amendment AND a pension reform amendment in 2021, taxpayers would feel a lot safer accepting it.
Note:
Here are the numbers to which I am referring. Illinois typically runs about a $6 billion dollar deficit. With COVID, 2020 will mark about a $7.5 billion shortfall. Illinois’s debt is currently at about $64 billion and growing at $6-7.5 billion per year. Without intervention, it is scheduled to hit $100 billion in 5 years.
The new tax program, proposed by the Governor, and requiring the Amendment to enact, increases the tax rate to 8% from 4.95% for earners making more than $250,000 per year and to decrease everyone else is tax right from 4.95% to 4.9%. This equates to a tax reduction for a family making $100,000/year by $1 per week, and a proposed increase in revenue of $3 billion. The State’s debt will continue to grow under this program by $3-$4.5 billion per year.
The Governor has stated that 8% is the “finally fair” tax rate for rich people even though this is insufficient to make a dent in our debt. In fact, the State’s debt is so big that at a “unfair” tax rate of 15% it would still take one full generation to pay off the debt.
Illinois is facing a constitutional amendment to eliminate the flat tax that has been in place for years. our Governor thinks that a change to Illinois’s tax program is the ticket to buy the state out of trouble. Unfortunately the numbers just don’t add up.
I found the following paragraph on the AARP website supporting the “Fair Tax” Amendment.
Illinois was drowning in debt. The pandemic has caused large parts of the economy to shut down and significantly reduced many sources of state revenue, like from income and sales taxes, as well as gaming. As a result, Illinois now faces a budget shortfall of $6.2 billion. If the graduated income tax ballot initiative does not pass, this shortfall will climb to $7.4 billion.
The article was called “Facts and Fallacies”, and this was listed as a fact. Unfortunately, it is a fallacy. These numbers are calculated under the assumption that nothing other than the tax formula will change. As I discussed in an earlier segment of this series, the behavior of the State’s greatest tax contributors will change.
Many highly paid Illinoisans will choose to reduce their income or stall its growth. Earlier, I discussed forgoing a promotion to avoid the higher tax rates, but this is not the only strategy Illinoisans will employ. Executive perks such as travel, cars, and luxury offices can be categorized as corporate expenses reducing personal as well as corporate taxation. Additionally, promises of corporate charitable giving can sub in for personal compensation. But most employers and executives will agree to reduce taxable income in favor of retirement income or deferred compensation.
It is important to note that retirement income is not taxed in Illinois – for now (take heed AARP). Following the amendment’s passage, Illinoisans will move to maximize their IRAs, profit sharing plans, and defined benefits plans or pensions. There are limits to all of these, but each removes money from the State’s pool of taxable income.
Deferred compensation such as vested options and stock sharing, will increase as a share of executive compensation. These programs do not generate taxable income until the assets are sold and can be held indefinitely without contributing any State revenue.
There will also be Illinois tax contributors who choose to set up permanent residence in Florida or Texas, where there is no (0%) state Income tax. New York and New Jersey have been suffering from the flight of its most wealthy for decades.
But there is another issue at work here and that is the danger of corporate flight. Illinois – and Chicago in particular – is viewed nationally and internationally as an unsafe environment due to guns, riots and looting, a high murder rate, an ineffective police force, and general, all-around poor, civic management. Meanwhile, the political climate is critical of right-leaning dissent and intolerant of most religion. As an additional 3% state income tax is added on to these issues, corporations considering a move to Chicago may take a pass, but the real fear is that corporations already here will choose to uproot and move to a more hospitable state with a lower tax rate and a friendlier climate to its executives.
With all these things taken into account, what does that $3 billion per year promised income really look like? I haven’t run any numbers, but I can imagine it being $2.5 billion additional in the first year – because behavioral change takes time – but $0 additional by the end of year five or six. The program might in total collect as little as $8-10 billion while offsetting that with a billion or two of additional unchecked spending – all this toward out deficit of $64 billion today and maybe as much as $100 billion at the end of the decade.
Meanwhile, we will have emboldened an already corrupt legislation to purchase more votes with tax payer dollars, witnessed the flight of many of Illinois’ best citizens, and diminished Chicago’s status as an international business center.
Now some naysayers may call me a chicken little. They will argue that there are far too many successful professionals and corporations in Chicago for a little flight to have any overall impact. And those that stay will contribute all the tax revenue the state needs to accomplish the State’s objectives of paying off the debt and increasing government services. But history offers a response t that. Detroit was one of the richest cities in the country in the 1960s and politicians making the same arguments we are hearing today increased taxes on the wealthy and driving them to the suburbs, leaving Detroit with a diminished tax base, ballooning costs of social programs supporting its urban poor, and leading the city into bankruptcy.
We do not want Chicago to become Detroit
The COVID pandemic has dramatically increased state expenditures and decreased states revenue. This is the single greatest deficit ballooning event in history. There is no instant panacea. Revenues will need to be increased and costs will need to be cut in order to dig out of this hole. To think that regular Illinoisans will be able to get through this unscathed while Scrooge McDuck and the Monopoly Guy foot the bill is absurd. Regardless, which way this constitutional amendment goes, our politicians need to get their heads out of the sand, roll up their sleeves, and reform five decades of terrible governance.
Illinois is facing a constitutional amendment to change the way Illinois citizens are charged taxes. Historically, Illinois has had a flat tax system where everyone pays the same rate. This does not imply that everyone pays the same taxes. A 4% flat tax equates to $40,000 on earned income of $1 million, but only $2,000 on earned income of $50,000.
But Illinois is in bad fiscal condition right now, and our Governor thinks that a change to Illinois’s tax program is the ticket he needs to buy the state out of trouble. In this third installment opposing the State Constitutional edit, and today I challenge the argument on the basis of fairness.
The pro graduated tax lobby has a pretty easy job. Their message, intended to appeal to the solipsistic masses, is that if all the regular joes vote together to approve the constitutional edit there won’t be enough votes on the other side to counter it. In other words, stick it to them, or the state will stick it to you.
It is an age-old argument that the rich should be taxed because they can afford it. These sentiments are fueled by occasional stories of some wealthy douche-hat that gets caught cheating on his taxes or some group of politicians that creates a loophole in the tax law that allows rich constituents to avoid paying taxes on certain earnings.
But these anecdotes ignore the primary fact that most wealthy Americans already pay the lion’s share of all taxes without complaint. At the federal level, a proxy for graduated tax distribution, the top 1% pays 40% of all income tax. The top 10% pays 70%, and the bottom 90% pays 30%.
In flat-tax Illinois, the distribution for income tax is a little more balanced, with the top 15% contributing 60% of the tax revenue collected, but when we consider property and sales taxes, the percentage contributed by wealthy Illinoisans increases due to expensive homes, and higher expenditures on consumer goods. Under a graduated tax program, the biggest contributors would see their taxes nearly double.
At what point are the rich paying their fair share? Imagine in your own life, one particularly good year followed by checks written to the government worth $1,000,000 on April 15. That money is not going to your family’s stability, your children’s education, your grandchildren’s independence, or the charitable causes you support. You don’t get a thank you note from the government, or the citizens it supports. Instead, you hear the ongoing call, that you should be paying even more. And if you argue the contrary you will be badged as greedy and probably evil too.
Stick it to them or the State will stick it to you.
Our wealthy Governor has stood up, a presumptive poster child for rich Illinoisans, and said that he feels he should pay higher tax rate. But let us be honest, as a member of the richest family in the state, his lifestyle and legacy would not be diminished at any tax rate. The challenges facing a guy that owns private jets are not the same as those faced by the fellow successful enough to fly business class occasionally.
The flat tax is fair. A graduated tax program could be fair and must be if it is successful. But we must reject that idea that just because someone has been successful is evidence – in itself – that they did not deserve to be. If Illinois cannot create a tax system that feels fair to those contributing the greatest amount already, those taxpayers will change their behavior, reducing their productivity and taxes paid before ultimately relocating to another state.
Illinois is facing a constitutional amendment to change the way Illinois citizens are charged taxes. Historically, Illinois has had a flat tax system where everyone pays the same rate. This does not imply that everyone pays the same taxes. A 4% flat tax equates to $40,000 on earned income of $1 million, but only $2,000 on earned income of $50,000.
But Illinois is in bad fiscal condition right now, and our Governor thinks that a change to Illinois’s tax program is the ticket he needs to buy the state out of trouble. This is the second installment in a series of why a graduated tax rate is bad for Illinois.
I don’t know if you have been paying attention, but machine politicians in Illinois have figured out how to corrupt just about everything. For years, they promised higher pay to public unions in return for organizational support. When wages could not rise any higher, they sweetening pensions, and when those benefits got too sweet, they eliminated employee contributions.
Recently, with union pensions under public scrutiny the Machine managed to negotiate a COMED contract “on our behalf” which funneled millions of dollars into Democratic slush funds that then supported compliant candidates around the state. All of these are examples of buying votes with taxpayer dollars.
Until now, Illinois’ constitutionally mandated flat tax, has been the one thing that the politicians could not put their hands into and muck up. But this constitutional edit eliminating the flat tax requirement will change that. Sure, the Governor and other proponents promise that regular Joe’s taxes will go down this year (about $25 a year), and both Scrooge McDuck’s and the Monopoly Guy’s will go up, but next year, all bets are off. This constitutional amendment allows the Machine to change the gradient of the tax code anyway they want. There is now nothing preventing them from cutting sweetheart deals with special interest groups to reduce taxes at one level and sticking it to adversaries in return for support of machine candidates.
The pro-graduated tax group points out that most states have done away with flat taxes and it might work in a well-run state, but Illinois is the worst run state in the nation. The legislature in Illinois has a terrible track record of avoiding corruption when opportunities for buying votes with taxpayer dollars are available. Arming them with the ability to graduate taxes willy-nilly will ultimately increase corruption, further the State’s economic woes, and ultimately reduce tax revenue.
To loosely quote Grandmaster Melle-Mel, “Now I’m broke and it’s no joke. Don’ t buy it!”
A Card Carrying Centrist 