Posts Tagged ‘Laffer’

Illinois: Proving Laffer Correct

Sunday, January 22nd, 2012

Arthur Laffer popularized the Laffer curve. The father of Supply Side Economics noted that in many cases, increasing the tax rate decreases the amount of tax revenues. It appears that Illinois is proving Dr. Laffer correct.

Moody’s just downgraded Illinois’ bond rating to A2 from A1. Illinois now has the worst rating of all 50 states–even worse than California. But wait: Didn’t Illinois pass a massive tax increase a year ago? Wasn’t that supposed to help Illinois’ financial condition? Here’s how the Wall Street Journal put it:

So much for that. In its downgrade statement, Moody’s panned Illinois lawmakers for “a legislative session in which the state took no steps to implement lasting solutions to its severe pension underfunding or to its chronic bill payment delays.” An analysis by Bloomberg finds that the assets in the pension fund will only cover “45% of projected liabilities, the least of any state.” And—no surprise—in part because the tax increases have caused companies to leave Illinois, the state budget office confesses that as of this month the state still has $6.8 billion in unpaid bills and unaddressed obligations.

There is some good news for Illinois. Governor Jerry Brown and other California Democrats are proposing a variety of tax increases for the Bronze Golden State (to be voted on in this fall’s election). It may well be that California will pass Illinois to the #1 spot.

Hat Tip: HotAir