Illinois’s ‘Privilege Tax’ Proposal Forgets Citizens’ Right to Leave

The state can’t even pass a budget, but it wants to put a new 20% levy on fees to financial professionals.

Proponents here call it the “privilege tax.” In their continuing quest to punish the productive areas of the economy, liberal groups are pushing legislation in blue states that will force finance professionals to pay up—or move out.

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.

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