54 states and counting? Wacky Tax Wednesday
In his inaugural address, President Biden spoke of “Bringing America together. Uniting our people. And uniting our nation.” Nevertheless, some lawmakers in Illinois, New York, and Washington are working to divide their states.
Illinois and the Republic of Forgottonia
HR0102 draws a distinction between “urban Cook County” and “downstate Illinois”— rural communities north, south, and west of the Windy City. It claims the two regions have distinct “needs, interests, economies, and cultures.” And it “urges the U.S. Congress to make the Chicago area the 51st state in the country.”
It may have to get in line, as there’s competition for the 51st slot in other parts of the country (see below).
The bill lists several past attempts “to split Illinois into two states.” For example, the City of Chicago passed a resolution to form the state of Chicago in 1925; and West Central Illinois created the Republic of Forgottonia in 1971, though it appears that was more of a “fictional political succession movement” than a serious effort to divide the state.
Downstate bill sponsor Rep. Brad Halbrook has introduced similar measures in the past himself. He’s frustrated by what he sees as the “growing divide between rural and urban.” Chicago lawmakers approve bills that don’t resonate downstate, he says, and dissenting voices from small geographic areas get drowned out.
Perhaps a two-state solution is just what residents of urban Cook County and downstate Illinois need. But for the proposal to be taken seriously, it needs to take logistics into account. Like the tax structure, for example.
New York divided
A more thoughtful proposition has been introduced in New York. Senate Bill 4541 seeks to divide the state into three autonomous regions:
- The Montauk Region (Long Island)
- The New York Region (New York City)
- The New Amsterdam Region (Upstate New York)
Each region would have its own governor, senate, and assembly, and the regional senators and assemblymen would serve in the state legislature. There would still be a governor of the whole state, as required by the United States Constitution, but John Bergener, Jr. of the Divide NYS Caucus says the governor would be more of a figurehead, like the queen of England.
Sales tax in the new New York
The three autonomous regions wouldn’t have the power to enact or collect any regional sales taxes; only the state legislature could enact state sales taxes. Many employees of the Department of Tax and Finance would be divided among the three regional departments of tax and finance, but those whose duties involve sales taxes would remain under the control of the state governor.
State and local sales taxes would apply to the lease or rental of moveable goods and taxable services, sales, and receipts from sales or rentals of hotel and motel rooms. A use tax would apply to items valued over $1,000 that are used in the state but weren’t purchased in the state (and therefore weren’t subject to New York sales tax).
Tax wouldn’t apply to the sale or use of medicines, food for home consumption, fuel, real property, sale of buildings, or nonalcoholic beverages.
Initially, the maximum combined state and local sales taxes couldn’t exceed 8% — 4% for the state and 4% for the region. Ten years after the regional governors take office for the first time, the state sales tax would be capped at 3% and the maximum combined rate would drop to 7%. The state would have to give 25% of its sales tax revenue to the regions, divided in proportion to each region’s population, until the regional governors have been in office for 10 years.
Divide NYS would rather divide New York into three separate states, but that’s a bigger ask that would require approval from the U.S. Congress. Three autonomous regions can be achieved by amending New York’s constitution, provided it’s approved by a vote of the people. Proponents also say the plan would strip the centralized state government of 90% of its power.
Washington’s new state of liberty
The idea of an independent nation along the Pacific Coast predates the creation of Washington state, and there’s been a movement to make the Cascade Range a bioregional state divide for decades. Proponents, who often hail from the more liberal west side of the mountains, call the proposed new state “Cascadia.”
In January, two congressmen from the more conservative Eastern Washington proposed a two-state solution of their own. HB 1239 would establish a new state called Liberty on the east side of the Cascades.
The Washington proposal provides more details than one in Illinois, but it's shallower than the New York proposal. It would create more than a dozen transition committees to “assist in the formation of the new state of Liberty.” They’d have two years to develop master plans for a range of issues, including:
- Executive, judicial, and legislative functions
- Health care
- Infrastructure and transportation
- Revenue and taxes
United we stand, divided …
Turning one state into two or three states could help solve certain problems in Illinois, New York, and Washington, where populous liberal cities may dominate politics. It could help folks in more conservative rural areas feel like their votes count.
Yet such divisions would also create many new challenges. In Washington, for example, more than a third of the tax revenue generated in King County (home to Seattle) subsidizes the rest of the state. Presumably, King County wouldn’t have to send tax dollars to Liberty.
And of course, new states would change the makeup of Congress.
One day there may be a 51st (or even 54th) state; maybe Liberty, Forgottonia, or a new Washington, D.C. But perhaps, for now, lawmakers should instead focus their energy on fostering unity.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.