Illinois Policy Institute CEO John Tillman was quoted in the following article published at chicagobusiness.com
by Greg Hinz
Illinois once was considered a state in which the middle class ruled, with wealth disparity relatively limited compared to other states. But that has significantly changed in the past two decades, according to a report released this morning by a Washington think tank.
Illinois now has the ninth-greatest income inequality between the top and bottom fifths of its population, the Center on Budget and Policy Priorities says, based on its review of U.S. Census data. And the gap between the top fifth and the middle fifth is almost as wide, with Illinois ranking 12th of the 50 states.
What's remarkable is how much that has changed since the late 1970s.
Between 1977-79 and 2005-07, for instance, the ratio of incomes of the top and middle fifths of households in Illinois increased from 2.0 to 2.8 — meaning that at the end of that period, families in the top fifth on average earned 2.8 times as much as those in the middle fifth.
That rate of increase in Illinois was sixth, leaving the state behind only wealthy coastal states known for massive wealth at the top — Connecticut, California and New York — and two Southwestern states, Oklahoma and New Mexico.
Illinois ranks fifth in widening disparity between the top and bottom fifths, and third in a comparison of wealth changes in the top 5 percent of households with those in the bottom fifth of households.
There are a lot of other data, but they all point to the same conclusion: As wealth disparity has widened nationally since the late 1970s, Illinois has helped lead the trend. This is driven by some bad things, like the loss of hundreds of thousands of well-paying factory jobs, and some good things, such as Chicago's emerging as a leader of the commodities and hedge-fund industry.
What does this mean?
The center's view is pretty clear. "Prolonged growth in income inequality undermines the basic American belief that hard work should pay off," said report co-author Elizabeth McNichol. "Anyone who contributes to the nation's economic growth should reap the benefits of that growth. But for decades now, those benefits have been skewed in favor of the wealthiest."
To mitigate that trend, the center suggests raising and indexing the minimum wage, reducing reliance on regressive levies such as sales taxes and boosting support services such as subsidized child care, transportation and health insurance.
That parallels arguments made by President Barack Obama in last week's presidential election.
Some studies such as this have been criticized in the past for not including certain non-cash income. But the center says it made special efforts to avoid that flaw, specifically including not only wage and salary income but welfare payments, child support, proceeds from the Earned Income Tax Credit, and an estimated value for food stamps and housing vouchers. Notably excluded is income from capital gains, which overwhelmingly flow to upper-income groups.
I'll run this report by a conservative group or two to see what they say after their numbers guys go through it. But, anecdotally, the report's conclusions seem dead-on to me. The gap between the rich and poor, and the middle class and the well-off, has widened a ton in Illinois. The questions: Should we be concerned, and should we do anything about it?
Update, 5:00 p.m. — I bounced the report by John Tillman, who heads the libertarian Illinois Policy Institute here. He had some quibbles with the report, but mostly objected to its recommended solutions.
“The prescriptions they offer all expand and perpetuate dependency (indexed minimum wage, earned income tax credits, longer and higher unemployment benefits . . . etc),” he wrote. Society “absolutely” needs a safety net, he continued. “The purpose should be to provide safety as needed but not (to) purposefully expand and encourage dependency indefinitely.”
One reason for income disparity is that middle-class wages have “stagnated,” he said — in part because workers don’t have money to invest in themselves via advanced education and the like. “The average household spends about $45,278 a year, has median income of $55,735 and pays taxes of just $5,685. This leaves $4,772 for saving and investment on average. When we increased taxes by just '2 percent,' it was really a 23 percent reduction in the average household’s ability to save.”
His conclusion: “We should be looking at how we can free up more cash from middle-income earners to save and invest. To do that we have to reform the great drivers of spending — Medicaid, education, pensions and benefits.”