Two Not-So-Complex Ideas to Help Fight Poverty and Enhance Economic Mobility

By: Christopher Ryan Crisanti

[On economics]

Take a trip to the loop on an average workday and you will be distraught to find many individuals who are homeless.  Further, travel just fifteen minutes to our region’s many neighborhoods and you will find a similar economic prevalence, where the middle class are struggling to make ends meat.

A recent report by the Chicago Sun-Times asserted roughly 44% of Chicagoans do not earn enough to cover housing, childcare, food, transportation and healthcare.  These stagnant wages, combined with higher prices, dilutes the purchasing power of the middle class.  Moreover, the economic conditions further suppress the lower class from climbing the economic ladder.

The report centered mostly on households that are considered “Asset Limited, Income Constrained” (ALICE), meaning they are making enough income to be above the poverty line, yet are still very much economically challenged to afford some of life’s common necessities.

While the reality and statistics are very much concerning, governments can adopt at least two policies that have proved to be effective and efficient at improving peoples lives and the economy.

First, governments can incrementally adjust the minimum wage to inflation to help sustain and increase economic purchasing power.  Prior to 1968, the debate on whether the government should adjust the wage to help keep pace with inflation was almost seen a non-issue.  In fact, between 1938 (when the wage was first implemented) and 1968, the federal government raised the wage approximately 11 times, according to data from the U.S. Department of Labor.  Had the minimum wage continued to be adjusted with inflation after 1968, the Economic Policy Institute asserts the wage today would be about $10.54.  As of this writing, the federal minimum wage has not been raised since 2009 and is currently $7.25.  Moreover, Pew Research Center has estimated the federal minimum wage lost approximately 9.6% of its purchasing power to inflation since the last raise.

States and localities have taken matters into their own hands where the federal government has lagged by incrementally adjusting their minimum wage.  There are only seven states in the union that do not have a wage above $7.25.  Additionally, there are about 44 localities across the nation that adjusted their minimum wage above $7.25. 

While these actions can be seen as a positive, the real priority should be ensuring that the wage is near or adjusted for inflation in order to help people sustain a sufficient amount of purchasing power. 

This brings our great metropolis back into center.  While our state’s minimum wage is higher than the federal minimum at $9.25, goods and cost-of-living have increased on an average of about 1.4 % per year the last decade, according to data via the U.S. Bureau of Labor Statistics.  Moreover, the consumer price index (CPI) for goods has increased 2.6% since last year alone.  With prices rising an average of over 1% per year and wages stagnating, it’s no wonder why the middle class are struggling to afford common necessities. 

This has provoked the General Assembly to pass legislation last year to incrementally adjust the wage to $15.00 by 2025.  The city of Chicago and Cook County have adopted similar measures.  Last November, the city council passed an ordinance to incrementally raise the wage from $13.00 to $15.00 by 2021.  Further, the County passed an ordinance in 2016 to incrementally raise the wage to $13 by July 2020 (although some municipalities opted out).

The Earned Income Tax Credit (EITC) is another effective program to fight poverty and enhance economic mobility by providing tax relief to working individuals and potentially giving them a specific refund at tax time.  The amount varies on an individual’s tax bracket and how many dependents they claim. However, the Urban Institute estimates that in 2018 taxpayers received an amount of $519 if they claimed no children and up to $6,431 if they had at least three children.  Additionally, twenty-eight states and the District of Columbia offer some version of the EITC.  The credit back to the taxpayer in Illinois is 18% of their federal credit and participants need to meet certain federal and state regulations.

The Center on Budget and Policy Priorities stated that the federal EITC helped lift 5.6 million people out of poverty while reducing the severity of poverty for 16.5 million in 2018.  The Congressional Research Service has labeled the EITC as one of the “largest anti-poverty programs” and cites that it helped reduce the “proportion of unmarried households with at least three children in poverty” by nearly 20% in 2018. The prior evidence of its impact has caused the State of Illinois to recently expand the EITC from 14% to 18%.   Other states of recent are following suite, with at least thirteen states expanding theirs the last decade.  Five states expanded theirs in 2019.

These policy proposals are just two of many options where the evidence presents a strong case to help people climb the economic ladder.  However, passing and implementing these measures is easier said than done in our current partisan environment.  The choice is up to our elected leaders: have a legitimate policy deliberation based on evidence or allow partisanship to poison our democracy and leave thousands continuing to struggle to afford life’s common necessities.

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