Illinois Tax Increases encourage Philosophical Showdown

Last week, the Illinois legislature approved the governor's call for a 67% tax increase on top-tier personal income (moving the rate from 3% to 5%) and on corporations (hiking the rates from 4.8% to 7%). Governor Pat Quinn, one of the few Democrats winning in the 2010 GOP wave, proposed the tax increases as a means to close the projected $15 billion state deficit (Michigan's 2011 projected budget gap is $1.8 billion). Neighboring Governors, notably Mitch Daniels of Indiana and Scott Walker of Wisconsin (both Republicans), have said that tax increases in Illinois will leave Illinois businesses shopping for a new home.

Tough economic times and the end of stimulus funds have most states looking at staggering deficits in 2011; Illinois more drastic than most. Democratic leaders, like Governor Quinn, seem to be looking for tax increases in effort to close their budget gap and federal investments (such as funding for "high-speed" rail systems) as a means to grow their economy. New Republican leaders like Walker and John Kasich (Ohio) have rejected money for these federal government projects, because of the "strings attached" to them (such matching funds and increased federal involvement in the affairs their state).

The arguments taking place highlight the major differences in political and economic philosophy. The liberal approach encourages more government involvement in economic affairs; a central planning approach. Modern day liberals (or progressives) preaches that government can stimulate economic growth by investing in "cutting-edge" industries such as alternative energy or life sciences. This approach favors tax incentives to particular industries that experts determine have high potential for growth. By "investing" in those industries and training workers to perform those jobs associated with these industries, this is what will pull the nation (and states) out of recession.

This philosophy was best exemplified (at a state level) by former Michigan Governor Jennifer Granholm, who's major initiatives included the Michigan Film Credit, government aid for embryonic stem-cell research and large tax incentives for "renewable" energy producers (particularly wind and solar). The Granholm legacy is one that puts government at the center of planning economic growth. On a national level, President Obama subscribes to this approach. The American Recovery and Reinvestment Act of 2009 (stimulus) was designed with the belief that a large influx in government spending, targeted in particular areas, would jump start economic recovery and growth. Planned investment in alternative energy, for example, is said to be the ticket to prosperity (and will save the environment too). Those who adhere to this philosophy we will call, The Planners.

On the other side, conservative or "free-market" thinkers, tend to oppose The Planners approach of targeted, government investments in particular industries; let's call them The Marketeers. The Marketeers tend to favor a philosophy of reducing the tax rates and regulations on all industries and allowing the market (aka consumers) to decide outcomes. Such government planning would result in the government picking "winners and losers." The Marketeers favor reigning in government spending with the belief that real economic growth can only occur when the private sector expands. This is the approach preferred by the previously mentioned governors, as well as the philosophy driving the Tea Party movement.

A simple decision to increase taxes in Illinois provides a textbook example for the stark philosophical debates that are taking place all across America. The formula for economic growth and the proper role of government are debates that go back to the very founding of the country itself. These are not only economic issues, but social and Constitutional matters as well. These debates will play out in Congress and in statehouses around the country in 2011; and will surely be at the center of the 2012 election.