$15 minimum wage hike to cost Illinois taxpayers $1.1B

As Pritzker’s minimum wage bill advances to the Senate floor for a vote, the new administration’s first major victory would come with a $1.1 billion price tag, courtesy of Illinois taxpayers.

Gov. J.B. Pritzker has made clear his intention to pass a $15 minimum wage increase ahead of his Feb. 20 budget address. And with the Illinois Senate not in session next week, the upper chamber is under pressure to send a minimum wage bill to the House before Feb. 8. Lawmakers in the House would then have more than a week to send the bill to the governor’s desk, within Pritzker’s desired timeframe.

An amendment to Senate Bill 1 added Feb. 6 by state Sen. Kimberly Lightford, D-Maywood, would phase in a $15 statewide minimum wage over a six-year period. Executive Committee members voted 13-7 to send the bill to the Senate floor for a vote the same day Lightford filed her amendment.

While Prtizker has made public few details concerning the cost of the measure, a memo from the governor’s office obtained Feb. 5 by WCIA-TV shows a forecast of the budgetary impact of the wage hike. It reports that the estimated cost to Illinois taxpayers just for state worker pay raises will reach nearly $1.1 billion.

That estimate does not include the cost of local government workers’ wage increases, which municipalities are likely to pay for by hiking Illinois’ already-high property taxes. Indeed, while the Illinois Association of Park Districts raised concerns about how they would weather the pending wage hike, local governments have noticeably been missing from the conversation at the state level.

Not all communities share the same socio-economic characteristics. While labor organizations understandably favor the prospect of higher wages for low-income earners, increasing the price of labor often harms the people the measures are intended to help. Small business advocates such as the National Federation of Independent Business have called the proposal a “job killer,” while the Illinois Retail Merchants Association endorsed a plan that takes regional differences into account.

Phase-in ramp

SB 1 would phase in a $15 minimum wage between fiscal years 2020 and 2025, starting with a $1 increase from $8.25 to $9.25 in 2020 – followed by a 75-cent jump to $10 that same year. The wage would rise in $1 increments annually until reaching $15 in fiscal year 2025. The schedule would be slightly different for tipped workers, whose minimum wage is 40 percent lower to account for gratuities. For park districts, which employ many teen workers, the minimum wage will instead increase to $13, according to WCIA-TV.

The proposal also includes a tax credit schedule first outlined in the memo. Businesses with 50 employees or fewer would receive a tax credit equivalent to 25 percent of the cost of their wage increases in fiscal year 2020. The benefit would decline inversely with the wage increases, eventually flattening at 5 percent in 2025. Business with fewer than five employees could continue receiving the 5 percent credit until fiscal year 2030.

Economic impact

Pritzker’s push for Illinois to adopt a $15 minimum wage comes amid the “Fight for $15” movement’s efforts to see the same wage mandate enacted nationally.

Some evidence suggests higher wages can boost productivity for individuals who are already employed. But advocates of minimum wage increases ignore rises in unemployment numbers and in how long they remain out of work.

Evidence suggests higher minimum wage levels lead to fewer jobs. This is particularly true for low-skill jobs, which are often the first to decline in response to a rise in the minimum wage. Moreover, empirical evidence suggests minimum wages do not elevate low-income families, nor reduce most forms of public assistance.

The purpose of raising the minimum wage is to increase take-home pay for low-income families. So long as such an increase reduces job creation for those families, it cannot accomplish that goal.

A pro-growth alternative

Illinois would be one of only five states to have mandated a minimum wage as high as $15. New Jersey became the fourth state to sign a $15 minimum wage into law Feb. 4. Illinois’ current $8.25 statewide minimum wage is in line with the national median.

This minimum wage hike would take the heaviest toll on state finances since the Pritzker administration took office, but it is not the first hit. Despite inheriting a budget deficit of more than $1 billion, Pritzker granted $100 million in pay raises to unionized state workers the day after his inauguration.

Moody’s Investors Service took note of the poor budget outlook Feb. 5, reiterating the state’s need to address its massive unfunded pension liability, structural deficits and the economic consequences of its declining population.

State lawmakers’ policy failures have plunged job growth in Illinois to among the slowest in the nation. The 2011 “temporary” income tax hike cost the state $56 billion in investment, shrinking employment by 9,300 jobs, and caused output per worker to decline by $7,200. The impact of the 2017 tax hike will likely be similar.

For Illinoisans to prosper, lawmakers must confront the main source of the state’s economic plight. The Illinois Policy Institute recently unveiled a plan that would balance the state budget, pay off its debts and cut taxes in five years. The resulting economic growth would invite investment back to the state, thereby increasing the quantity and quality of jobs.

Raising the cost of doing business in Illinois is only likely to further repel investment, and further depress Illinois’ already-weak jobs climate. Those lowest on the socio-economic scale would bear the brunt of that downturn.

While policies such as the $15 minimum wage are intended to help those most in need, creating new barriers keeps them at a disadvantage.