Center for Tax and Budget Accountability – Chicago Newstips by Community Media Workshop Chicago Community Stories Mon, 14 Jul 2014 17:31:05 +0000 en-US hourly 1 Don’t fear 15 Thu, 29 Aug 2013 23:07:21 +0000 With fast-food and retailer workers striking in 58 cities Thursday — a dramatic increase over the seven cities where similar actions took place last month — calling for a $15-an-hour wage, here’s an interesting historical note:

Fifty years ago, when Martin Luther King spoke at the March on Washington, one of the demands was a minimum wage increase from $1.15 to $2 an hour.  That would be just over $15 in today’s dollars.

In case we’re tempted to get carried away with this “dream,” the Chicago Tribune offers us University of Chicago economist Allen Sanderson’s advice: “Don’t fight for 15.”

All in all, it’s a pretty thorough demonstration of how far the dismal science can stray from any connection with reality.

First of all, he warns that if workers become too expensive, they risk being replaced by automation.  In fact, though, it’s really hard to imagine how much more automated McDonald’s could be.   Or to picture computerized checkouts at Macy’s.

He suggests higher wages would mean even higher unemployment rates for minority teens.  That might be a factor if there were a better job market for older people, but there isn’t — especially with an economy that is quickly replacing middle-class jobs with low-wage ones.

More than half of new jobs are in low-wage retail and hospitality sectors, according to the Chicago Political Economy Group.  And the number of college graduates earning minimum wage is steadily growing.

In fact the surge in youth unemployment came before the 2008 crash, while the economy was growing (not very fast), as federal funding for youth jobs was eliminated.  As we noted at the time, it was the first economic recovery in which youth unempoyment increased.  That was without a minimum wage hike, too.

Really poor?

Sanderson then looks into the “claim” that “one can’t live on $8.25 an hour and that someone working full-time would be in poverty.”  Not true at all, he says — a full-time minimum wage worker earns $16,500 a year, a generous $1,000 above the federal poverty level for a two-person household.

Of course, if the full-time worker had two kids rather than one, the family would be at about 20 percent below the poverty level.  Which is not exactly quibbling.

But the reality is that only about one-third of minimum wage workers have full-time jobs.  That’s one of the reasons fast-food workers want a union — so they can negotiate over things like scheduling.

And the poverty level is widely discredited.  It was developed in the 1960s and is based on a moderate food budget, multiplied by three.  But since then other costs — particularly housing and health care — have grown at a much higher clip.

In 2009 the Social Impact Research Center of the Heartland Alliance estimated (pdf) that in order to meet basic needs in Illinois — housing, child care, food, transportation, and health care — using tax credits but not public benefits (with no allowance for leisure, travel, or emergencies), a single parent of two children would have to earn $23 an hour.

WBEZ recently profiled a part-time Macy’s worker who earns minimum wage plus commissions.  She also works second part-time for minimum wage as a telemarketer.  She’s got four children and a partner who also works a minimum wage job.  She’s also on food stamps and Medicaid.

“At the end of the week, I still don’t have enough money to put food on the table and clothes on my children’s back,” she says.

Who pays?

A crucial question, Sanderson says, is who will end up paying for these wage increases.  Will it be stockholders with lower returns, or customers with higher prices?

We looked at this a couple weeks ago, when the Tribune asked whether customers would be willing to pay higher prices to cover higher wages — but failed to give any idea of what those prices might be.  You’d think an economist would be interested in this detail.

Economists Jeanette Wicks-Lim and Robert Pollin of the University of Massachusetts have indeed looked into this — they say a $15-an-hour wage for McDonald’s workers would raise the average  price of a Big Mac by 22 cents.  Ouch!

How about McDonald’s shareholders?  According to Paul Buchheit, the corporation’s profits average out to $18,200 per worker.  There’s certainly room to pay a little more without too much pain at the top.

But there’s another question that’s just as crucial, which never seems to get asked: who pays for the low-wage economy?  Besides Macy’s workers who can’t quite cover food and clothes, that is.

Who pays for the food stamps and Medicaid to supplement Macy’s minimum wage?  Who pays the $5,815 a year that an average Wal-Mart worker gets in public benefits?

First in line, of course, are taxpayers — which in Illinois disproportionately means individuals over corportions (the state leads in several outmoded tax loopholes for corporations, and two-thirds of corporations in the state pay no income tax), and with our regressive tax structure, it means moderate-income taxpayers bear a heavier burden.

Right after that come all the residents who don’t get the services they need — like the hundreds of thousands who’ve had their health care cut, including hundreds of medically-fragile children and many others shunted into nursing homes.  Or the thousands of Chicago schoolchildren who don’t have libraries or art teachers.

Because Macy’s and Wal-Mart need our tax assistance in order to keep their wages low.  (And please don’t ask them to pay more taxes!)  Why aren’t the deficit hawks at the Tribune screaming about that?

Beyond that, everyone who’s waiting for the economic tide to rise — all the unemployed, underemployed, and discouraged workers, all the small businesses that are barely hanging on — would be helped by the immediate boost to our economy of higher wages for a major sector of the workforce.  Workers with a little extra money will spend it, and that’s good for everyone.  The Center for Tax and Budget Accountability has estimated that a $2 boost to our minimum wage would inject $2.5 billion into the state economy and generate 20,000 jobs.

That could even help get more people shopping at places like McDonald’s, or at Macy’s and Wal-Mart — all reporting declining sales, all citing slack consumer demand.

Instead, our political and opinion leaders are forcing us into a downward spiral of growing low-wage work, anemic job creation, and increasing austerity in public services.

The members of the Workers Organizing Committee are displaying remarkable courage, standing up for themselves and their families in a threatening economic environment, with little besides their own solidarity and nerve to sustain them. In fact they are standing for a better economy for all of us.

Meanwhile the defenders of the status quo deploy every scare tactic they can to get them to back down.

My guess is that’s not going to work.


The invaluable Dirt Diggers Digest gives an overview of McDonald’s history in light of Thursday’s strike –including union resistance when the company initially tried to move into San Francisco and Detroit in the 1970s, McDonald’s role pushing for a lower minimum wage for teenagers, and its resistance to efforts to ensure that farmworkers picking its tomatoes are paid decently.

“More than any other restaurant operator, [McDonald’s] has worked to suppress pay rates, enforce harsh work procedures and prevent unionization. In other words, it epitomizes everything that the current strikes are trying to change.”

But “McDonald’s response to the farmworker campaign shows that, when put under enough pressure, it will make concessions.”

Will higher wages hurt the economy? Sun, 04 Aug 2013 19:28:40 +0000 Higher wages for fast food and retail workers could hurt the economy, according to an analysis by the Chicago Tribune.

The analysis includes comments from the Workers Organizing Committee, which led hundreds of workers from national chains, from Wendy’s to Potbelly and from Sears to Victoria’s Secret, in strike actions here last week.  They’re not looking to double wages to $15 an hour overnight; they’re trying to organize a union and address a range of issues.

It also includes a Whole Foods employee who works two additional jobs and still qualifies for food stamps, and a labor economist who is quoted to the effect that high unemployment helps lower wages.

But its major thrust is whether consumers can stand to pay the higher prices that they say higher wages would require.  The economists they ask about this specialize in consumer psychology and marketing behavior.

One crucial piece of information is omitted, curiously:  how big of a price increase are we talking here?

In a column reviewing “the boilerplate argument against higher wages” — which is precisely that it would hurt consumers with “enormous” prices increases — David Sirota fills us in.

Raising the minimum wage to $10.50 would add 5 cents to the price of a Big Mac, according to one analysis.  Another study found that raising McDonalds workers’ hourly rate to $15 would drive the price of a Big Mac up by 22 cents.

Run that by your consumer psychologist.

A recent study by Action Now and Stand Up Chicago found that  raising Chicago retail and restaurant workers’ wages to $15 an hour would cost about $100 million for a sector with $14.2 billion in yearly revenues in the city.  That’s about 2.6 percent of revenue.

“Downtown employers can afford a very significant increase in wages,” they argue.

It’s an important reality check to vague scare talk about higher prices.  That line of arguent works because it involves a “populist insinuation that higher wages would hurt the Average Joe,” according to Sirota.

Here’s another hard economic fact that deserves more attention, courtesy of the Center for Tax and Budget Accountability:  the largest, most profitable retailers in Illinois pay the lowest wages.

On average, the huge chains, those with more than 500 employee in the state — about 2 percent of the firms, with about 60 percent of market share — pay 18.5 percent less than smaller companies.

McDonalds’ profits last year were $5.5 billion.  And they don’t want to give their workers a $3-an-hour raise because they’d have to charge 5 cents more for a hamburger?

“Retail and fast food outlets in the Magnificent Mile and the Loop are among the country’s most profitable, but their workers take home poverty wages to the city’s poorest neighborhoods,” said Katelyn Johnson of Action Now in a statement supporting WOC strikers.

“We know that they need and deserve a living wage to support their families. And every dollar invested in a living wage will raise up the economy for all of the city’s neighborhoods.”

CTBA estimates that by increasing consumer spending, raising the minimum wage by two dollars would generate 25,000 jobs in Illinois and increase economic activity in the state by $2.5 billion.

But there’s a much larger question missed by the Trib’s analysis:  can the U.S. economy handle the wholesale replacement of middle-class employment with low-wage jobs?

Middle-income jobs represented 60 percent of job losses from 2008 to 2010 but only 22 percent of job growth in the recovery.  On the other hand, low-wage jobs accounted for 21 percent of lost jobs but 58 percent of subsequent job growth.  (The Tribune has covered this.)

It’s happening in Chicago:  nearly one-third of Chicago workers now work for $12 an hour or less (up from 24 percent in low-wage jobs in 2001) according to a report from Women Employed and Action Now. 

Those are the kinds of jobs where Chicago is “showing strength” — “lesiure, hospitality, food, retail industries,” especially tied to tourism — as Mesirow chief economist Diane Swonk tells the Sun Times.

According to Women Employed and Action Now, those are jobs “paying too little to support an individual, much less a family, without public assistance or charity.”

Meanwhile, as I’ve argued, Mayor Emanuel’s policies seem aimed at turning Chicago from the union town to a low-wage town.

Is this really the direction we want to go?

Maybe Chicago’s retail and fast food workers and the Workers Organizing Committee can do something about that.

Common sense on pension reform Thu, 10 Jan 2013 00:11:56 +0000 Lots of gnashing of teeth over the failure of the legislature to “do something” about pension reform.

Some sensible sorts point out we’re probably better off without the plan put forward in the House, which would have been challenged in court and almost certainly found unconstitutional, since the vast bulk of its savings came from reducing the benefits of current state workers and retirees.

In Arizona, which has a constitutional provision like Illinois’s barring any diminishment of pension benefits, a recent reform plan was found unconstitutional – and the state was ordered to pay workers back with interest, points out Ralph Martire of the Center for Tax and Budget Accountability.

If there’s one thing we’ve seen this week it’s the wisdom of the 1970 Constitutional Convention in protecting state workers from lying, thieving politicians — and from honest, well-intentioned ones who try to fix their messes without seeing the big picture.

All the plans on the table are focusing on the wrong area of the problem, Martire says.  “We don’t have a benefits crisis, we have a debt crisis.” It’s the predictable result of the 1995 “reform,” which pushed the problem down the road by steeply backloading pension fund payments.

Stabilize the debt

CTBA has proposed amortizing the pension debt over 45 years, which would head off steep pension contribution increases now facing the state — and in fact reduce pension costs over time.

With 45-year amortization, the $8 billion annual pension contribution and debt service would be stabilized and would gradually but steadily come down, approaching $6 billion by 2045.  That’s a lot of money, but it’s a lot less than $16 billion each year projected 30 years down under the current scenario.

Even under Governor Quinn’s pension stabilization plan, which depends on courts validating a choice for retirees between full health coverage and promised cost-of-living increases, state contributions rise steeply after the next few years to unaffordable levels – somewhere between $10 billion and $12.5 billion a year by 2040, according to CTBA.

By getting the state off the escalator, amortization is a sensible first step toward dealing with the crisis, and Martire expects legislation to accomplish that in the coming session.

Another sensible step would be sitting down with the unions that represent the workers who are affected by this crisis.

Talk to unions

State workers want a sustainable solution as much as anyone, and they’ve gone so far as to propose increasing employee contributions if the state will close corporate tax loopholes (including several where Illinois leads the nation in giveaways) and provide a legal guarantee that state contributions will be made.

They point out that at the Illinois Municipal Retirement Fund, which is legally required to make its pension contributions, no funding problem exists – yet none of the proposals now on the table include such a guarantee.

[CORRECTION: The House bill would require annual contributions, but unions say its enforcement provisions are limited and inadequate.]

But Springfield has been “stonewalling on participation of unions,” said John Murphy, president of the University Professionals of Illinois retirees chapter.

The coalition of state workers unions has renewed its call for a pension summit with lawmakers.

“The lame-duck session made it clear once again: Legally dubious proposals developed without working with those most directly affected — public employees and retirees — are a recipe for failure,” said the We Are One Illinois coalition in a statement.


There’s also the common-sense notion of fairness:  state workers and retirees haven’t caused the crisis – they’ve made their payments with every paycheck – and they aren’t living high on the hog, especially the large majority who aren’t eligible for Social Security.

Finally, common sense would dictate that Illinois has to address its fundamental fiscal problem – a revenue system that looks for money in all the wrong places.

The regressive tax structure – with low-income residents paying twice as much of their income to state and local taxes as the wealthiest do – leaves untouched the sector that’s reaped the most economic gains in recent decades.  And of course, as Quinn has pointed out, half of Illinois corporations pay no income tax.

CTBA and the League of Women Voters are working on a constitutional amendment allowing a progressive income tax – which would reduce most taxpayer’s rates — for voter consideration in 2014.

It’s one of a number of serious efforts to address the state’s revenue crisis.  There will be no real solution to these problems without taking this on.

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Black unemployment high in Chicago; wage-sharing could save jobs Thu, 05 Jul 2012 20:00:17 +0000 While releasing a new report showing Chicago among the top cities in the nation for African American unemployment, the Center for Tax and Budget Accountability is urging the state to avail itself of new federal funding for “wage-sharing” programs that reduce layoffs.

The Chicago area had the third highest African American unemployment rate in the nation last year, according to a new report by the Economic Policy Institute released here by CTBA.  While unemployment among African Americans fell in most metropolitan areas last year, in Chicago it increased by 1.7 percent to 22.6 percent.

In 2010, five other metropolitan areas had higher black unemployment rates than Chicago; last year only Los Angeles and Las Vegas did.

St. Louis, Atlanta, Memphis, New York, Philadelphia, Baltimore, Houston, Dallas/Fort Worth, Washington and Richmond had black unemployment rates that were below the national average of 15.9 percent, according to the report.

Chicago is also near the top in the ratio of black to white unemployment, with African Americans here 2.5 times more likely to be unemployed.

One significant factor could be heavy cuts in public service jobs, which disproportionately impact the black community, said Ron Baiman of CTBA.

Federal funds for wage-sharing

A new initiative could help keep those numbers from rising further. Baiman said the federal government recently issued regulations for a provision in the jobs bill passed in February, under which the federal government will provide 100 percent funding for wage-sharing programs.  (See CTBA’s fact sheet on the program.)

Under such programs, workers receive partial unemployment benefits to cover lost wages when their employers reduce their hours in order to prevent layoffs.  Currently 21 states have wage-sharing programs.

Under the new legislation, the feds will pick up the cost of such programs for up to three years.  “That’s a big incentive,” Baiman said.  “There are no downsides and many advantages” to enacting wage-sharing, he said.

A wage-sharing program would keep workers employed and paying taxes, help employers recover more quickly when business picks up, inject money into the state’s economy, and reduce the deficit for the state’s unemployment insurance program, saving employers from having to pay higher assessments in the future, he said.

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Illinois leads on sales tax loss Mon, 01 Dec 2008 20:07:34 +0000 Illinois leads the nation in states tax revenue lost from diversions to retailers to compensate for collection costs, according to a new study by Good Jobs First.

The state loses an estimated $126 million a year to retailer compensation — far more than any other state — and it also leads the nation in sales tax subsidies as part of economic development packages for Wal-Mart.

Nationally, of 45 states which collect sales tax, 19 provide no compensation for collection costs; of 26 that do, 13 of them cap compensation amounts, most of them below $10,000. Good Jobs First estimates that states lose $1 billion a year through sales tax diversions — $70 million of which goes to Wal-Mart.

Vendor compensation allowances, instituted before computerization brought down accounting costs, create “a windfall for giant retailers like Wal-Mart,” according to GJF’s Phil Mattera. GJF urges retail compensation be modernized in light of technological advances.

GJF cites a study that found that sales tax collection costs range from 13.5 percent for small retailers to 2 percent for large retailers.

“It is frustrating that when our state’s huge, ongoing deficits have forced cuts to human service programs used by the most vulnerable members of society, Illinois continues to lose so much revenue to this practice,” commented Ralph Martire of the Center for Tax and Budget Accountability.

Illinois leads on Wal-Mart breaks

Looking at diversion of sales tax revenues to economic development projects, GJF found that Illinois by far leads the states in sales tax rebates for new Wal-Marts, with $41 million going to eleven Wal-Mart developments over the past decade. In addition, a Wal-Mart in Collinsville received $9.5 million in sales tax increment financing in 2004.

The total for Illinois is more than a third of the $130 million in development-related sales tax subsidies that GFJ estimates Wal-Mart has received nationally over the past decade.

Last year Good Jobs First reported that Illinois leads other states by a wide margin in public subsidies to Wal-Marts — including subsidies for new stores in Orland Hills, Belleville and Collinsville that replaced existing Wal-Marts (see June 2007 Newstip).

The group calls for reasonable limits on retailer compensation and for restricting economic development subsidies to bringing basic necessities to underserved areas.

Support for progressive income tax Mon, 10 Nov 2008 20:07:57 +0000 With Illinois facing a $1.4 billion budget gap — and with voters saying no to a constitutional convention which might have fixed a constitutional provision requiring a flat rate for the state’s income tax — Public News Service reports on a new survey by the Paul Simon Public Policy Institute with 66 percent of respondents supporting a progressive income tax for the state.

People “just sort of generally understand the fairness behind it,” comments Ralph Martire of the Center for Tax and Budget Accountability.  The state’s antiquated tax structure is at the root of its revenue problems, he says.

“If your revenues don’t grow with the modern economy, you can’t continue to support public services because service costs go up with inflation every year,” Martire tells PNS. “You can’t have the fifth-biggest [state] economy ranked 45th in revenues and expect to meet the needs of your population – and we don’t. And that’s why we underfund schools, we underfund transit, we underfund health care; we underfund everything.”

Illinois is one of seven states with a flat income tax rate.

Missing from budget debate Thu, 26 Jun 2008 21:09:20 +0000 Personalty conflict is a big part of the state’s budget impasse — but for the major media it’s the only story, and that’s part of the problem.

Take funding for the state’s desperately needed capital budget.  It’s presented largely as a problem between the governor and the mayor over how much the city will pay for a casino franchise.

There’s a lot more to the story, according to Ralph Martire of the Center for Tax and Budget Accountability — a reality that is largely separate from the rhetoric, which is all that seems to get covered.

The vast majority of gaming is in-state, Martire said, and it’s a substitute expenditure — money spent in casinos is not spent at dry cleaners or shoe stores.  But because the majority of casino owners are out-of-state, the profits don’t go back into the local economy, the way money spent at the dry cleaners does.

Compared to public expenditures, which have a large multiplier effect on the local economy — teachers salaries are spent in ways that produce more jobs here — spending on gaming has a significant negative multiplier effect, he said.

Compared to a direct tax — where a dollar for the state costs a taxpayer a dollar — every dollar in gaming revenues for the state costs an Illinois resident five dollars in gambling losses.  And the people providing the revenues are not the wealthiest by far  — they’re low and middle income.

Martire also doubts the short-term gain (and the politicians’ revenue projections), since a new casino in Chicago or the south suburbs is going to attract the same people who are now taking buses to Joliet and Elgin.

To top it all off, it’s a low-wage industry.

It’s a huge net loss for the state, Martire said.

He holds out hope for a realignment of political forces in the veto session, after the election, that could boost chances for real fiscal reform.  CTBA, A-plus Illinois, and others are backing SB 2288, which would balance the budget, increase the tax system’s progressivity and reduce property taxes, provide a permanent revenue stream for schools — and fund the same $25 billion capital program the governor is pushing.  The bill passed the Senate education committee earlier this year by a vote of 6 to 3.

“All the state’s fiscal problems are coming to a head,” Martire said — a tax system that doesn’t grow with the economy, the pension crisis, health care costs, inadequate and inequitable school funding.  In other times, such a crisis would present an opportunity to address basic problems, he said.

It’s the “toxic relationships” in Springfield that have gotten us here, Martire said.

But focusing on the personalities and ignoring the issues that are at stake just recirculates the poison — and fails to point to a way out of the impasse.

Outdated tax system hurts Illinois economy Sun, 27 Jan 2008 19:58:01 +0000 A new national study offers support for local reformers’ arguments that Illinois’ “antiquated” tax system could be a drag on the state’s economy.

The failure of state tax systems to keep up with fundamental shifts in the economy — including the shift away from manufacturing —   is fueling revenue and public investment shortfalls that undermine economic growth, according to an analysis released in early January by the Pew Center on the States, a program of the Pew Charitable Trusts.

“Antiquated tax structures result in lost revenue, an environment that is inefficient and inhospitable to business, and inequitable taxes on some segments of the economy at the expense of others,” said director Susan Urahn in a statement on the report from the Pew Center.

Mary Jo Waits of the Pew Center will be among national experts joining the Center for Tax and Budget Accountability‘s annual fiscal symposium Tuesday, as the CTBA shifts its focus beyond Illinois to consider what other states are doing to address slowing revenues and rising demands for services, said Ralph Martire.  Illinois comptroller Dan Hynes and treasurer Alexi Giannoulias will also participate.

Martire and CTBA have longed criticized the Illinois tax system for instability and unfairness, with “structural mismatches” guaranteeing growing deficits because state revenue sources don’t capture economic growth.

This includes a sales tax focused heavily on the sale of goods, while the growing preponderance of the economy now involves sale of services.  And it means a regressive reliance on property taxes (and a flat-rate income tax) so the tax burden falls on the lower half of wage-earners — whose income is declining after inflation — rather than the top 20 percent, where income growth is heavily concentrated.

Among the results of revenue shortfalls is the failure to fund capital improvements and education.

“If you want to be competitive in a global market, you have to invest in infrastructure and you an an educated workforce, and Illinois is falling short on both counts,” said Martire.

CTBA’s fiscal symposium takes place Tuesday, January 29 at 9 a.m. (registration and breakfast at 8:15) at the Union League Club, 65 W. Jackson.  Registration is due by Monday; call 312-332-1041 for registration information.