Thursday, March 27, 2014

Potential Governors? Here's an Acid Test

Governor's Mansion in Illinois
Potential Governors & Budget Wars: Earned Income Tax Credit

The would-be governors’ campaigns this spring, summer, and fall will likely be taken up with attacks and counter charges about sound fiscal management and Illinois’ difficult choices.  Much of the argument will bounce back and forth between increasing revenue vs. cutting expenses - both parties claiming that services can be retained with their respective visions.

In any case, the fiscal issues of Illinois’ structural deficit will stand center stage.

Governor Quinn has outlined his position as of Wednesday, March 26th, with some specificity.  Bruce Rauner, the Republican challenger, has decried Quinn’s outline as “broken promises,” but has yet to flesh out the specifics of his own approach to the difficulties. 

It was not by accident that Governor Pat Quinn evoked the name of Ronald Reagan the other day during his budget speech in front of a joint session of the General Assembly when it came to the Earned Income Tax Credit  (EITC).

In fact, Reagan, although not the architect of the EITC, is often credited (rightfully) with expanding the program into what we have currently on the federal level (and subsequently on the state level in Illinois).  Indeed, as Governor Quinn suggested, Reagan was nothing but enthusiasm about the EITC program, calling it, “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”

Current Governor Pat Quinn
In truth, it was President Gerald Ford who first signed off on the concept of an Earned Tax Credit.

Pat Quinn has called for a doubling of the Earned Income Tax Credit in Illinois.  What does that mean?  

In short, the EITC works to provide a tax credit to those who are working, but who fail to make a living wage - especially families with children.  Colloquially: Instead of providing monetary relief to those who don’t work, the EITC provides relief to those who have a job but one that does not provide them enough money to survive as a family/individual.  

By the way, since 2007, that notorious number has been increasing steadily in Illinois as well as on the national level.  The Great Recession has made this single act (EITC) a lifeline to millions of American families - and the expansions of the act are set to phase out in 2017.

Don’t think for a minute that everyone is on board with this program on the federal or state level; and it will be interesting to see where Mr. Rauner resides when asked or given the opportunity to explain.  

The Earned Income Tax Credit is expensive.  And there are reasons:

Tax credits do not get figured like tax deductions.  In other words, tax credits directly reduce income tax liability.  Okay, that was confusing.  Let’s imagine you have a tax deduction of $300 this year.  That would be figured by your marginal tax rate (the level of taxes you pay).  So if you are in the 33% tax bracket, you’d get back 67% x $300....  That would come to about $201.

But a tax credit is $300 less without any rate, and at a level nearing poverty, that’s $300 back to you.  In other words, even if you have a $100 tax bill and a $300 tax credit, that's $200 back to you.

See the difference?  It’s more money in the pocket of those who receive EITC’s than those who use standard deductions (like me).   Another difference, of course, is that tax credit money will be spent immediately by impoverished families for food and other essentials.

Challenger Bruce Rauner
The expense is also why there’s a large coalition of legislators on the federal level who can’t wait until 2017, and who also argue that we need to eliminate this for any number of reasons.  Some of their charges are as follows:  
(1)  Low Income Workers end up with no skin in the game in support of the common good.
(2)  EITC redistributes income to people who have never paid a dime in their lives.

In Illinois, one (or a family) can only achieve eligibility for an EITC if they have received such a credit in their federal taxes.  After that, as with the taxes federally, there are many forms and requirements to move through, and often people seeking an EITC require the assistance of a sound tax expert.  In Illinois and on the federal level, tax assistance is provided for those who qualify.

EITC  Maximum Receivable Credits (2012):
No Children............................. $475 
One Child …………………...$3169
Two Children……...…………$5236
Three Children……....……….$5891

Single mothers are, as one might have expected, the largest group of recipients for the EITC, and the legislation is tilted toward helping children.  In fact, over half the recipients of relief in this act are children.

Without children a single mother can expect (in 2012 numbers) a much smaller potential amount than one with children.  Required income thresholds break the same way:  
Single mother/no children……………..………$13,980
Single mother/ one child………………………$36.920
Single mother/ two children…………...………$41,952
Single mother/three children…………....…..…$45,060

For married couples, thresholds follow a very similar pattern.

I mentioned earlier that such a program is expensive.  Indeed, it is.  

On the national level, the EITC (2012) cost nearly $59 billion.  The Child Tax Credit (CTC) a tandem program cost an additional $56.8 billion.  Temporary Assistance for Needy Families (another program) cost $16 billion, and SNAP (once called food stamps) cost nearly $80 billion.  

Note:  On the other hand, in the same year exclusion of company pension contributions, and earnings reductions on capital gains & dividends amounted to over $200 billion.

Decisions, decisions…

Philosophies will drive the battle for Governor of Illinois this campaign season, make no mistake about it.  And Quinn has called for a doubling of the EITC in Illinois.  What does this mean?  Sounds extravagant.  Let's take a look.

On the state level, one receiving an EITC receives a percentage of what was provided on the federal level.  Up until 2013, qualified impoverished tax-filers could receive up to 7.5% of the money granted on the federal filing.  It was raised in 2013 to 10% by the Tax Reform & Economic Growth proposal.  That would be maximum of $316 for a single mother with a child in our state.

Quinn wants to double the EITC payout in Illinois.  That same mother may qualify for $732 in EITC from the state, money that will (according to studies) be destined to return to the local economy almost instantaneously.

Expensive?  You decide: Nearly 1 million families received EITC relief in Illinois in 2013.  Total cost?  $160 million.

And yet, Illinois has an aching need to help a great many of its citizens, especially those working but without earning the money to make ends meet.

Here's some sobering information:

(1) 33% of Illinois citizens live in poverty or near it.

(2) Since 2007, there has been a 3.1% increase in number of Illinois citizens in poverty.

(3) 22% of children in the state of Illinois live in poverty.

(4) United States citizens living in poverty total 48.5 million; in Illinois, 1.9 million.

Listen carefully during this voting season to what these two have to say about what to do fiscally for Illinois.  It affects us, but it could destroy many others.

Note: Much of the information in this post was gleaned from the Economic Policy Institute and Illinois’ Government website for those seeking an EITC.

Monday, March 24, 2014

Crain's Modest Proposal - Surrender Unions?

Crain’s Modest Proposal

Crain’s Opinion page had an interesting offer for public sector unions today, March 24th.  

“It’s time to talk.  A negotiated agreement is far preferable to one imposed Wisconsin-style.”

Reminds me of Marlon Brando as Don Corleone making the unions, “an offer they can’t refuse.”  A kind of firm friendliness not usually expected from the business daily.

The title of the editorial is straightforward:  “The Primary’s Lesson for the Public Sector Unions.”  As titled, the opinion cautions the recent result of the March 18th Republican primary sends a notice to Illinois public employee unions that their impact was inconsequential despite spending “nearly $4 million to stop GOP candidate Bruce Rauner.”  The editorial also cites the Chicago Teachers Union’s almost $100,000 in “a failed bid to oust state Rep. Christian Mitchell” as another politically important indicator.

Crain hypothesizes that these recent shortcomings are a foreshadowing of the degenerating impact of unions on our state level.  We have become as vestigial as a shrunken appendix.  Note: They conveniently avoid the Guzzardi win...

The entire editorial is couched in a carefully worded and very self-serving letter of concern, like an intervention or bittersweet break-up.  A combination of “It’s not you; it’s me” observation, delivered across the table with about just as much insincerity. 

Like most such messages, there’s just enough shading to obscure a truckload of truths while promulgating of lot of the opposite.  

According to Crain’s, the unions’ suing to block the final implementation of SB1 is not only foolish but wrong-headed, for the unions as much as for the people of Illinois.  “...unions preferred solution to their badly underfunded pensions - significant tax increases - is woefully short-sighted.”  

Crain’s, like the Tribune and other corporate media in Illinois, hang ownership on the public sector worker organizations for the $32 billion diverted/taken/stolen from promised pension payments over the last half century.  Even Msall of the Civic Federation has serious doubts about the viability of the Constitutional inviolability of the SB1, and he holds desperately onto a very rare and tenuous “police powers” argument in his hopes for legal support on the highest levels.  Much of that some time later.

Without the unions’ willingness to negotiate, according to Crain’s, they have backed the “big tax hike that will send employers and middle class families fleeing across the border.” 

Suddenly concerned with the poor, Crain’s also warns that the impoverished will be the ones saddled with impossible tax burdens, now especially with their houses underwater. 

Very emotive...but not quite accurate.

Certainly other solutions have been offered to legislators, the Tribune, and the media for the insurmountable debt in which Illinois now finds itself.  Unfortunately, the tunnel vision of Crain’s and other corporatists remains blinded to other reliable suggestions: (1)  Move to eliminate the current pension ramp (PA 88-0593) and replace it with an amortized debt repayment schedule to the pension funds,  (2) reform the antiquated, and flawed flat tax policy and replace it with a fair tax which ( will increase the revenues for the state,  (3)  broaden the tax services by adding possible or slight increases in services,  (4)  eliminate the tax loopholes for the many businesses that receive them in Illinois or collect them from the Governor on requests,  (5)  consider other possible revenue sources, like speculation sales taxes or reductions in tax increment financing districts.  

Not likely.  For Crain’s, the culpable for the impoverished in Illinois would be the public sector unions.  

That’s simple.  That’s convenient.  And it changes the narrative a bit.  “It’s you, baby, not me.”

And, in the end, Crain’s promotes its position as witness to a watershed moment:  “But this election proved that the public is losing patience with the unions’ all-or-nothing position...Don’t play with disaster when the outlines of a compromise solution are clear: modest increases in revenue, more realistic cost of living increases on retiree benefits and higher minimum retirement ages.”  

What does Crain’s editorial group expect?  The unions will rescind their suit over the constitutionality of SB1?  They believe that working people will agree to ignore the words “shall not diminish or impair” now that we face the very consequences of those words?  Have some respect for your audience, please.  

Shoddy journalism, and specious arguments...and very less than critical thinking.   

Negotiate now?   Case in point, Crain’s endorsement of Rauner on March 2nd as “an outspoken and energized advocate for the people who pay the freight of in the state...” demonstrates that neither Crain’s nor Rauner want a union to negotiate; rather, to roll over and play dead.  

It is you, baby, not us.

Friday, March 21, 2014

Post Primaries & Awaiting Orders

Post Primaries and Awaiting Orders…

I could tell by Ernesto’s Cheshire smile that he was having a wonderful moment, once again at my expense.

“Hello, my friend,” he beckoned, waving his tall cup of Ethiopian coffee and reclining in the leather chair of his favorite coffee shop, “let me buy you a good cup of coffee for once.”

“Thanks, Ernesto.  Nice of you.  What’s the occasion?”

“Why Rauner!  Now we will see what a real Republican can do in Illinois, while you poor union lackeys are left with such a sorry load of Democrats.”

“Ouch!  But, Ernesto, why would you think I voted Democratic?  In fact I received as many as three phone-voice messages from our union leadership urging me to vote Republican in the primaries, specifically for Dillard.”

Ernesto was incensed: “Only unions would sink to such a lack of credibility, a total abandonment of principle.  They’re only in it for themselves, and this shows it.  They’re trying to prevent a true leader like Rauner from getting into the governor’s office.”

“Not true, Ernesto.  It was actually an attempt, albeit a failure, to get the right Republican into office.  Whew, can’t believe I just said that, Ernesto.”

“Stupid and disgusting unions,” Ernesto muttered.

“Not really, Ernesto.  Somewhat shrewd, really, because the real enemy is Pat Quinn.  One-on-one against Quinn in November, Dillard might easily have won.  In fact, Dillard came close to defeating all of Rauner’s money (and your deep love of him) in the last weeks before the primary.  Dillard actually closed 9 percentage points despite the untold millions of dollars Rauner poured into his campaign.”

“That’s only because Dillard was able to pull in favors like the rest of the politicians down there. Now we’ll see a real leader who is independent of Springfield and not frightened by the other politicians.”

“Ernesto, you are still holding on to the misguided belief that money - like Rauner has - can buy the office?  In actuality, your chances of having a Republican in the Governor’s mansion were diminished in the watch-wearer’s victory this week.  I am afraid, Ernesto, we are both losing this time, my friend.

“Rauner is not appreciated south of I-80 at all.  In fact, Ernesto, I’d remind you that his close ties and vacationing with the likes of Rahm Emanuel and his chummy connections to other Chicago power-brokers will work against him when it comes to next November.  Many people in Illinois do not relish another part-time visitor from the great city to the north.”

“But he’s not like the loser with the hairbrush or the clown you call Squeezy.  He has promised things people believe term limits and, better yet, crushing your union bosses.”

“People may not be quite as uninformed as you would prefer, Ernesto.  Government doesn’t work well in small chunks of time and responsibility, never has.  People in small towns understand government as well as those of us who work in larger metropolitan areas.  We know that governments, small businesses, and even families do not operate on short, limited expenditures of energy and responsibility.  Imagine short bursts of personal agendas instead of forward vision?  Budgets and expenditures and service cost projections need long-term caretakers and responsible parties to oversee their operation and to be responsible for the efficacy of their running.  Why, if everyone simply put in their one or two or three terms, they could run away without consequence.  It would also open the frightening dysfunction we see in Washington now, with people who promote an ideal over an idea.  We’d have a roster of short-timers, Ernesto, like a couple of quickie Senators in Illinois who are onto the national platform without any real feeling or serious work for the people in Illinois.”

“Like Obama?”

Touché, Ernesto.  But now the union has the difficult task of possibly switching allegiance away from an avowed enemy to a very unfriendly and uncooperative foe.   Not a good place to be, Ernesto...a Hobson’s choice, as they say.”

“Well, my friend, I’m with Rauner, if that means anything to you union people.”

“I’m glad you are, Ernesto.  I guess I’m just a union lackey awaiting orders.  Thanks for the coffee.”