The Exchange Formerly Known as the Chicago Mercantile Exchange–now dubbed the CME Group–has announced that the tax situation in its current corporate home of Illinois is “untenable“:
“Our tax situation is untenable,” [CEO Craig] Donohue told Reuters, noting that CME is taxed more heavily than any of its global competitors. The company is talking with at least three states — Texas, Florida and Tennessee — about relocating some of its business to take advantage of lower tax rates there, Donohue said.
Did he say Texas? Well, come on down! Plenty of room! Might I suggest Houston?
I am a native Chicagoan, and a latter-day Texan. As someone who still identifies with Chicago, and who is deeply proud of the city’s history, I am truly saddened by the circumstances that led to the CME thinking seriously about pulling up stakes. It is the company that arguably has the deepest, longest, and most emotional tie with the city. Their destinies and identities have been linked for almost 160 years, if you include the CBT, and nearly 100 just looking at CME alone. The exchanges have long been iconic symbols of the city. When derivatives exchanges began to spring up around the world beginning in the 1980s, they all looked to emulate Chicago. The futures exchanges were the city’s unique and enduring contribution to the world of finance.
But, as they say in Texas, bidness is bidness. Illinois has become an unbelievably hostile environment for business. As Walter Russell Mead has blogged about regularly, the Blue State model is broken beyond repair. And Illinois is about the bluest and brokenest state in the country–in many senses of the word “broke.” “The City That Works”–Chicago’s old-time motto–is no longer operative. The state is well into the fiscal death spiral: bloated spending leading to high taxes that drives out business and people. The writing was on the wall before the last election, but the new governor and the legislature refused to make fundamental changes in the way the state spends and operates, deciding instead just to ratchet up taxes. When businesses and people can move, that never works. Never.
So the mystic chords of memory only go so far, and the CME owes it to its shareholders to make a rational decision. And a rational decision means start humming “Southbound.” The tax environment is better, and the regulatory environment is too. In Texas specifically, tort reform has made a big difference in the business environment.
And unlike Boeing (also a Chicago company, as of recently), CME Group won’t have to worry about the NLRB if–or should I say when?–it decides to move.
Like the bumper stickers say, I wasn’t born in Texas, but I got there as soon as I could. And damned glad I did, for a variety of reasons. Paradoxically, it is in many ways more like the US of a long time ago, but its future is a lot brighter than that of virtually any other “progressive” place in the US–including progressive Illinois and Chicago.
Though actually that’s not really a paradox, IMO.