When a business invests in a project, the investment is expected to increase the company’s earnings and value for shareholders. Just like businesses, government—with investors known as “taxpayers”—should only fund projects with a positive net present value. That means you only spend on projects that deliver value to taxpayers, yielding higher incomes and revenues without resorting to tax hikes.
Unfortunately, Illinoisans should brace themselves for a slow recovery because of repeated policy mistakes and misplaced government spending priorities. Bad decisions will ultimately lead to sluggish economic growth.
Research shows government’s spending choices matter. More specifically, fixing the state’s finances primarily with cuts to government wages and benefits has a better chance of encouraging successful expansion. But fiscal adjustments that rely on tax increases to raise government wages and benefits while cutting public investment harm the economy in the long run.
In the wake of the pandemic, states like California have cut public-sector pay. Washington, New York, Virginia and Pennsylvania all delayed state worker raises.
Meanwhile, Gov. J.B. Pritzker has refused to make any of these tough choices. On July 1, amid unprecedented job losses, Pritzker chose to stick with the minimum wage increase and state workers’ pay raises. Other states have recognized the toll minimum wage hikes will take on small businesses recovering from COVID-19, especially restaurants. Virginia is delaying a raise from its current $7.25 an hour.
Because these pay increases aren’t tied to increases in demand, business costs will go up. That increases the likelihood those most affected by the downturn—women and minority workers—will have no job to return to.
While other states are shifting their spending priorities to help those most harmed by the COVID-19 crisis, Illinois’ politicians are refusing to make difficult choices that would support struggling residents.
In addition, small businesses, which are responsible for the bulk of job creation, face a potential tax hike in November. If Pritzker convinces voters to pass his progressive income tax, more than 100,000 small businesses would face a tax hike and Illinoisans in the bottom 20 percent of earners would still face the third-highest tax burden in the country. This contractionary fiscal adjustment will result in permanent job losses only to benefit powerful special interest groups.