Illinois Seeks 20 Percent 'Privilege Tax' on Financial Advice

The word “privilege” is starting to cause a visceral reaction in me. Class warfare is alive and well, legalizing theft is an increasingly popular idea, and criminalizing expertise is called “progressive.”

The state of Illinois is considering a whopping 20 percent “privilege tax” on financial advice:

The Illinois bill would put a 20% levy on fees earned by investment advisers. It passed the state Senate in a 32-24 vote Tuesday, and backers are hoping to get it through the House before the legislative session ends May 31.

The new tax is pitched as a way to squeeze more revenue — as much as $1.7 billion a year — from hedge funds and private-equity firms, which purportedly get off easy on their federal taxes because of the “carried interest loophole.” But under the current version of the bill, Illinois would keep collecting the privilege tax even if Congress were to cease taxing carried interest at the lower capital-gains rate.

Liberal groups are also hoping — probably in vain — that a multistate agreement will prevent financial firms from simply decamping to friendlier climes. An earlier version of the Illinois proposal included a provision so that the 20% tax would take effect only if and when New York, New Jersey and Connecticut enacted similar measures. But the bill as written now would impose the tax regardless, and lawmakers will simply have to hope other states follow suit.

Yet who says financiers can’t do their jobs just as well in Palm Beach, Fla. — or London, Zurich or Hong Kong? The progressives peddling this idea don’t understand that Chicago competes for these businesses not only with New York and Greenwich, Conn., but with anywhere that can offer cellphone service and an internet connection. Finance is international and highly mobile.

Precisely. Thank goodness for the Law of Unintended Consequences.

Chicago became a financial center in a day before video conferencing, email, and free long distance phone calls. It made sense to create financial hubs in key cities.

Today, it’s not as vital.

It’s not just the financial advisors who may look across state lines. People who use these services are going to be impacted as as the advisors pass along expenses to their customers like every other business on Earth. Due to the inexpensive nature of technology, everyone can use video conferencing, email, and cell service to coordinate with advisors outside of the state.

Let’s see Illinois try to prohibit speaking with an out-of-state advisor. That’ll go well.

There is literally no way this proposal can strike you as a fine idea unless you’re a progressive idiot who simply has no background in economics or history, or an understanding of human nature. Of course, this is Illinois we’re talking about here. So this will either pass, or several elected officials will get considerably wealthier from bribes to vote “no.”

If passed, it would immediately be a massive boon for other states, as financial firms will flee Illinois before sundown. They would be wise to make plans for rolling out the welcome mat immediately.