Thursday, November 17, 2005

State of Illinois economy shows a need for a type of new deal

Free trade agreements mean lower wages for most and higher wages for the top in First World nations, as the high-wage manufacturing jobs wither away.

That's what I take away from a new report released today (but not yet on the web as of 8:40 am) called The State of Working Illinois, featured in the Tribune today here.

Incomes are flat in Illinois. The anecdote behind the data is the $15-hour job at a manufacturing plant that used to keep puchasing power high for the middle class is now largely gone, replaced (if at all) by $7 an hour service jobs.

That's a major shift and a major problem.

Free trade agreements absolutely accelerate this bad-for-our-economy shift.

Maybe there's a bigger upside in increased exports from Illinois, but the numbers don't look bear that out.

What can the State do?

Since the structure of our economy is shifting to push incomes down on most but skyrocket them for the wealthiest, we should raise taxes on high incomes and cut takes on incomes below the poverty line.

We should make higher education free -- or at least, free to anyone from a working class family through much more generous financial aid.

We can not blame high incomes taxes in Illinois for our flat wages, since our three percent state income tax is the lowest of any state with an income tax.

We should raise that 3% state income tax to 6 or 8 percent and exempt all income below the poverty line from any taxation.

And since our sales tax and our local property tax are each so high (that hits lower income people harder), we should feel even better about raising the state income tax.

That's a tax system that better matches the structure of a free trade economy.

If corporate American and the party of the rich want to push so hard for NAFTA and CAFTA and GATT and strip away every other protectionist tarriff (that ultimately protect higher wages in manufacturing), then their end of the bargain should be to tax the higher incomes that are generated from free trade in order to raise the standard of living of the majority of people that lose income from the deal.

That seems fair to me.

(Of course, congressional Republicans want to cut taxes on wealth even more. But that's another story).

11 comments:

Steve Bartin said...

It's difficult to see how higher taxes will attract more jobs here.States with lower taxes have been growing at much higher rates than Illinois.Illinois can't compete.Who wants to deal with unions? Expensive regulations? Corrupt politicians? Who wants to put a call center or factory here in Illinois? Other states have high tech jobs and they are able to compete.All you big spending Republicans and Democrats must face reality:it's expensive to pay government workers to retire early.

Nathan Kaufman said...

http://www.news.uiuc.edu/news/05/1101flashindex.html

Generally speaking, gradual changes may be a lot better than big sudden shifts in certain instances. In regards to taxes: small incremental changes may be preferable to discontinuous change to something radically new.

All of this is "may"- i am not currently an illinois tax expert. My ideas are subject to change without notice.

Lazerlou said...

Dan, the real issue is ownership of the means of production - not preserving $15 an hour jobs. What we need is profit sharing and equity for workers such that when the companies they work for grow large, the become rich with them, and they don't care that their job has been sent to Panama, cause they will enjoy the increased profit too. Then they can join the upper middle class folks who spend 4 bucks for a coffee in the morning and support the growing service industry that supports our conspicuous consumption, and laso provides much need jobs to recent immigrants and the poor.

We need to be a country full of owners, or else we are doomed. Protectionism is not the answer Dan, ever. Create wealth but make sure it is divided equitably.
Your localized, protectionist pragmatism is disconcerting sometimes. Sometimes the most expedient policy is not the best one.

The Dude said...

I have an idea -- why not pass the governor's capitol bill. This will create thousands of good paying jobs while improving the state's infrastructure at the same time.

Time to stop politicizing this one and get it done. How long will the republicans deny their constituents much needed improvements and jobs in order to prevent Blagojevich from having something positive to campaign on?

Nathan Kaufman said...

Interesting post.

You need to throw social security into this discussion. "Free trade" with countries that do not provide the same security for workers is interesting.

Big companies can move jobs to third world countries where workers do not have security systems, and do may not pay similar amounts in payroll taxes.

Nathan Kaufman said...

payroll taxes are a huge part of the taxes aid by lower income people with children. payroll taxes have been increasing a lot since the inception of payroll taxes.

http://www.cato.org/dailys/2-20-98.html

payroll taxes make it expensive for big companies to hire and pay workers in IL and the U.S.

Lazerlou said...

Again, I admit to not knowing much of the details of these free trade agreements and I certainly concede that if they are little more than a way for corporations to exploit foreign labor with no labor laws, then that is a bad thing and these agreements should be resisited. But that doesn't change the fact that free trade agreements help create welath an should be prusued, but in an ethical manner.

Just like my problem with Federalism and states rights, unless you guarantee some level of regulatory conformity amongst teh competitors, you will suffer a devestating race to the bottom. Efficiencies that free trade brings are moot if the agreement ecomes little more than an opportunity for certain countries to offer their labor and enironments up for exploitation.

Nathan Kaufman said...

i tend to believe in free trade too, but there are lots of nuances and accompanying things that have to be considered.

it is interesting to think how more effective corporate governance at the highest levels could help IL.

http://njk42.blogspot.com/2005/11/tribune-opportunity.html

Nathan Kaufman said...

http://macroblog.typepad.com/macroblog/2005/08/more_on_labor_m.html

another thing to think about is labor force participation rates. a smaller proportion of people are working today vs. historical.

I am not sure what "household" means in the Tribune article, and if the decline in household income is related to labor force participation rates.

so the next time someone tells you how low the unemployment rate is, you may also want to consider the overall labor force participation rate. After people are unemployed for more than a certain period of time, they are no longer considered "unemployed". Also, the longer an economy is stale, the more time companies have to get smart about how to downsize without turning former employees into "unemployed"

Cal Skinner said...

The folks who can bring jobs to Illinois care about the income tax rate.

Wouldn't you think even Democrats would be a bit more leary about taking money out of people's pockets with the 12% cut in household income since 1999?

Nathan Kaufman said...

http://www.ft.com/wmrc2005

at the URL above, how many of the world's most respected companies are in illinois?

Business schools at the U of C and NW are generally in the global top 20, yet no corporations based in IL are fortunate to be in the FT global top 20.

This looks like an opportunity.