Jim Dey | State's poverty problems severe, could get worse

Jim Dey | State's poverty problems severe, could get worse

Illinois is awash in poverty — 1 in 4 state residents on Medicaid, which provides health coverage, and 1 in 3 considered either poor or low-income.

So says the Heartland Alliance, which recently issued an "Illinois Poverty Update" that claims "that societal position keeps opportunities out of (the poor's) reach and nearly guarantees worse outcomes in every quality of life domain — making all of us worse off."

Then there's another report, this one from the American Legislative Exchange Council, which argues those who think Illinois' poverty situation is bad now can expect things to get worse.

In a "Rich States, Poor States" report prepared for the council, economists Arthur Laffer and Steven Moore contend that high-tax states, including Illinois, are driving upper-income residents elsewhere, and their absence will produce significant budget problems.

"Red (low-tax) states ought to brace themselves: The Yankees are coming, and they are bringing their money with them. Meanwhile, the exodus could puncture large and unexpected holes in blue (high-tax) state budgets," Laffer and Moore argue.

On their face, these are two separate issues. But they go hand in hand because states that lack adequate financial resources cannot meet the costly needs of their poorest citizens.

The Heartland Alliance produced statistics that demonstrate Illinoisans are living in poverty from the geographic top to the bottom — the three southernmost counties showing poverty rates of 18 percent of higher. At the same time, Cook County's poverty rate runs between 12 and 17.9 percent.

In actual numbers, it reports that 20,000 or more people in both Champaign and Vermilion counties are living in poverty.

A family of four earning less than $12,300 a year is considered to be living in extreme poverty, earning less than $24,755 living in poverty and earning less than $49,510 to be low-income.

The report makes no mention of the impact a variety of social safety-net programs — food stamps, rental assistance — have on poverty levels.

Heartland Alliance also reports that women and children make up 30 percent of those considered to be living in poverty. Whites (8.8 percent) and Asians (11.6 percent) have relatively low rates of poverty, while blacks (26.5 percent) and Latinos (17.2 percent) have higher rates of poverty.

That ugly situation will be exacerbated in coming years because a migration pattern already underway will expand. States already expensive to live in will become more expensive, the result being, according to Moore and Laffer, that "millions of people, thousands of businesses and tens of billions of dollars will flee."

"The losers will be most of the Northeast, along with California. ... Also in big trouble are Connecticut and Illinois, where the overall tax burden (especially property taxes) is so onerous that high-income residents will feel the burn now that they can't deduct these costs on their federal tax returns," Laffer and Moore report.

They are referring to new federal tax legislation that limits state and local tax deductions to $10,000. The vast majority of taxpayers won't be affected by that limit, but high-income earners no longer will be able to deduct all the state and local taxes they pay from their federal income tax.

That modification is designed to reduce the burden states with low or no income taxes bear in subsidizing high-tax states. On the other hand, it will increase the effective tax rates of high-tax state residents.

In California, the highest state income tax rate is 13 percent, which is reduced to 8.5 percent because of the federal deductibility headed for extinction. Under the new law, California residents will feel the full effect of that 13 percent rate.

Illinois, which has a population of 12.5 million, faces that bleak future, even as it's currently flailing.

In the "Rich States, Poor States" study, Illinois was rated near the bottom of the 50 states in economic outlook.

Coming in at No. 48, Illinois lost more than 700,000 residents between 2007-16. Its property tax burden ranks No. 43. Equally disturbing, Illinois' debt service as a share of its revenue is 9.5 percent, ranking No. 44.

At a time when it needs more jobs to boost its lagging economy, Illinois' average worker compensation cost per $100 is $2.23, ranking No. 43.

Based on their formula, Laffer and Moore ranked most of Illinois' neighbors much higher — Indiana No. 3, Michigan No. 28, Wisconsin No. 19, Missouri No. 23, Iowa No. 29 and Kentucky No. 31.

Utah and Idaho came in at No. 1 and 2, respectively.

Laffer and Moore contend that, in response to migration trends, high-tax states must "start taking tax competitiveness seriously" and lay the groundwork for reductions.

But at least in Illinois, that prognosis is falling on deaf ears.

Democratic gubernatorial candidate J.B. Pritzker has announced he'll seek an increase in the state income as a prelude to trying to persuade voters to pass a progressive income tax constitutional amendment to replace the state's current flat tax.

A recent poll showed Pritzker with an 18-point lead over incumbent Republican Gov. Bruce Rauner. So if Pritzker wins, state income taxes — along with social welfare spending — will be going up and, according to Laffer and Moore, so will the rate of people leaving Illinois.

Jim Dey, a member of The News-Gazette staff, can be reached by email at jdey@news-gazette.com or by phone at 217-351-5369.

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