Don’t compound Iowa tax inequity

Posted November 16, 2015 by iowapolicypoints
Categories: Budget and Tax, Economic Opportunity, Organization

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The first report by a self-proclaimed conservative think tank in Iowa is getting some attention today, and reviving dubious ideas about taxes.

First, we applaud the recognition from Engage Iowa that our state’s various tax rates are not as high as they appear at first blush, because of federal deductibility — which permits tax filers to reduce their state taxable income for federal taxes paid. Ending federal deductibility, which Engage Iowa proposes, is something Iowa should consider. That would allow lowering the top rate to around 7 percent and eliminate the perception problem the group is so concerned about.

Unfortunately, however, this is not a well-thought-out plan to improve fairness and simplicity in Iowa taxes, or to assure adequate revenues for schools and other critical services, which are the best way to promote economic growth.

It compounds the overall regressive nature of Iowa taxes — and does nothing to help low- to moderate-income working families. In fact, for many families it would destroy the most important recent advance — the Earned Income Tax Credit. Some 147,000 recipients making over $10,000 — 70 percent of all EITC recipients — would lose the EITC.

While raising low-income Iowans’ taxes, the plan would buy down income-tax rates for higher-income Iowans with a sales tax increase. This would compound existing inequities in Iowa’s state and local tax system, which taxes the bottom 80 percent of taxpayers at about 10 percent, and the highest earners only 6 percent. The big winners would be those with the highest incomes.

The report’s claims about taxes and migration fly in the face of much published academic research showing that in fact taxes have very little influence on interstate migration. The claims that the flat tax would result in substantial economic gains to the state are highly suspect.

Finally, the group’s argument rests on discredited assumptions about Iowa’s so-called “business climate” and ignores the fact that Iowa already is very — perhaps overly — friendly to business. The plan places a great deal of weight on the Tax Foundation rankings, which have been thoroughly debunked. The author could have consulted more credible rankings of business climate, such as the Anderson Economic Group (which places Iowa 20th best, with below-average business taxes) or Ernst and Young, which has Iowa 28th, with an effective rate equal to the national average.

In short, the plan focuses mostly on a perception about Iowa taxes, a perception that is inaccurate but is cultivated by anti-tax forces, rather than ways to improve the stability and sustainability of funding for the critical public services on which all Iowans depend.

2010-PFw5464Posted by Peter Fisher, Research Director of the Iowa Policy Project


Privatizing Medicaid: ‘Why?’ ‘What?’ and ‘How?’ not yet answered

Posted November 3, 2015 by iowapolicypoints
Categories: Budget and Tax, Economic Opportunity, Organization

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060426-capitol-swwWhy do we have Medicaid? It’s a simple question with a simple answer. We have Medicaid because if we don’t, there are millions of Americans, and nearly 600,000 Iowans, who will not be able to get health care. Private industry will not provide it.

Why, we must ask, would we turn over to private industry a critical part of our public safety net to business interests that operate with a principal purpose of making money?

How do we assure that services are provided, that our responsibilities are met, if the people running the operation are not answerable to us?

As the legislative Health Policy Oversight Committee meets today about the Governor’s privatization edict on Medicaid, we need to remind ourselves of these basic questions.

When the Governor cannot detail the purported savings and our common sense tells us otherwise, we need an assurance that data will be available — and publicly available — to monitor what is happening with a service that has been accountable and efficient in expanding health-care access to Iowans who need it. We need to know Iowa is not setting itself to repeat problems that have been demonstrated in other states.

What will pass for public oversight after we’ve turned over the keys to private industry?

Over three dozen people and organizations filed comments (available here) with the oversight committee for today’s meeting at the Statehouse. Many have a firsthand understanding of the purpose and practice of Medicaid as we know it, and serious questions of their own about the uncertain world where the Governor is taking us, on his own.

Clearly, many fundamental questions have not been fully vetted through the legislative process, nor given a hearing before the decision was made within the Governor’s Office.

How we assure health care access to low-income Iowans needs to be the central issue here, not an afterthought.

Owen-2013-57Posted by Mike Owen, Executive Director, Iowa Policy Project

About those jobs …

Posted October 22, 2015 by iowapolicypoints
Categories: Economic Opportunity, Organization

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To read the headlines, you might not know we actually lost jobs the last two months. In fact, we’ve lost jobs in three of the last six months.

Basic RGB

Our monthly Iowa JobWatch report offers context you don’t get from official news releases.

Overall, we continue to have stubbornly and staggeringly slow job growth in Iowa. We are only about halfway to the ambitious job goal set by Governor Branstad when he sought Terrace Hill in 2010 — 200,000 jobs in five years. Through 56 of those 60 months, Iowa’s economy has added only 97,400 jobs.

That we don’t have a chance of reaching his goal is not surprising, as the long-term trend of 2,000 or fewer jobs added per month, which has held through his term, is far too slow a pace for the job growth that the Governor promised.

This has been going on for many years, and we have not fully recovered from a recession that ended six years ago. We have a 37,800-job deficit from the number of jobs we need — accounting for population growth — to be where we were at the start of the recession in 2007. (See graph below)

Basic RGB

For the state to be trumpeting a sixth-lowest unemployment rate really misses the job picture in Iowa — which is neither one of sweetness and light nor of gloom and doom, but one that demands a little more critical thinking about the challenges that face us.

How do we encourage more, and better, jobs in Iowa with sensible public policies that do not squander our state revenues on subsidies for companies to do what they would do anyway?

Owen-2013-57Posted by Mike Owen, Executive Director, Iowa Policy Project

New rule! Governor wants to make laws himself

Posted October 14, 2015 by iowapolicypoints
Categories: Budget and Tax, Economic Opportunity, Organization

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We all know the drill: The Legislature passes bills and the Governor signs or vetoes them, whereupon they become either laws, or nothing.

Not anymore, apparently.

The move by the Branstad administration to implement a new sales tax break worth an estimated $40 million a year — possibly more — is taking place outside the legislative session. If it succeeds, we have entered a new world of executive authority in Iowa.

Business lobbyists wanted the change, it could not pass the Legislature, and the administration thinks it has found a short cut: Change the longstanding interpretation of the existing law. Presto, tens of millions of dollars will be available for manufacturers. And those same tens of millions of dollars will not be available for schools.*

Consider a Des Moines Register guest opinion by Mike Ralston of the Iowa Association of Business and Industry, a lobbying group representing manufacturers who would benefit from the change:

Part of the change affects Iowa’s existing sales and use tax exemption for machinery and equipment used in the manufacturing process.  The change is sound policy.

If that’s the case Mr. Ralston wants to make, let him make it during the legislative session. This rules change skirts the legislative process, and Iowans are noticing. Jon Muller writes in an insightful piece on the Bleeding Heartland blog:

It’s easy to look at political discourse today and conclude everything is a battle between Democrats and Republicans, the left and the right, liberals and conservatives. But far more is going on with this issue. … A Democrat will surely be Governor again someday, and it would be a mistake to set a precedent that allows the Executive Branch to so drastically change the tax climate. If Republicans in the Legislature do not stand up against this unprecedented over-reach of power, they will almost certainly live to regret it.

James Larew, an Iowa City attorney who was general counsel to former Governor Chet Culver, served for four years as Culver’s appointee on the Administrative Rules Review Committee, a panel of legislators who have the authority to delay the rule change from taking effect. He advised the panel: “This is new territory. What is sauce for the goose eventually becomes sauce for the gander, too.” Larew went on:

The balance of political power changes from one election to the next.

The balance of constitutional power — the relationship between the Iowa General Assembly and executive departments of government — is more serious and more lasting.

Broad interpretive powers given up by the Legislature, in one moment of time, concerning one issue, are not easily, later recovered.

As the Cedar Rapids Gazette opined in an editorial, the change “breaks the rules of good government.” The Gazette wrote:

The Branstad administration should drop its rule change bid and make its case to the General Assembly, which is elected to craft a budget and write tax policy. If it’s truly a great idea that will create jobs, as the department contends, surely the sales job won’t be that difficult.

Many businesses, we often note at IPP and the Iowa Fiscal Partnership, already pay no income tax in Iowa, and they just had their property taxes slashed. The corporate appetite for tax cuts is insatiable. Guess who pays?

*  Note: The Department of Revenue estimate of the cost of this tax break to both the state and local governments is over $40 million for each of the first four full years of implementation, according to a document provided the Administrative Rules Review Committee. The Legislative Services Agency has told ARRC that it does not have enough information to determine the accuracy of that estimate. We have revised the initial version of this blog post to reflect this uncertainty, until state officials agree on an estimate.
Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project


Iowa Cannot Afford Another Wasteful Business Tax Break

Posted October 13, 2015 by iowapolicypoints
Categories: Budget and Tax, Economic Opportunity, Organization

Tags: , , , ,

2010-PFw5464Statement by Peter Fisher, Research Director, The Iowa Policy Project, before the Administrative Rules Review Committee

October 13, 2015

The administration’s proposal to create new sales tax exemptions for Iowa businesses is unnecessary, expensive and counterproductive. The state can ill afford another tax break that will harm essential state services while producing little or no economic benefit.

Iowa business taxes are already quite competitive

  • The most recent study of state and local taxes on business as a percent of state GDP by Ernst and Young and the Council on State Taxation shows that Iowa taxes business at 4.7 percent of GDP, exactly the same as the national average. Iowa ranks right in the middle of the pack.
  • A study by Anderson Economic Group in 2015 calculated state and local taxes on business as a percent of pre-tax profits and found Iowa’s effective tax rate to be 8.7 percent, which placed it 32nd among the states, below the national average.

State and local taxes have little effect on business location decisions

  • State and local taxes are less than two percent of total costs for the average corporation. As a result, even large cuts in state taxes are unlikely to have an effect on the investment and location decisions of businesses, which are driven by more significant factors such as labor, transportation, and energy costs, and access to markets and suppliers.

Enacting a subsidy through administrative rules guarantees complete absence of evaluation and accountability

  • While the sales tax break has been promoted as an economic development incentive, creating it by administrative rule eliminates even the minimal level of accountability established by the Legislature for the periodic review of tax credits. There will be no review, no evaluation of its effectiveness, not even an annual accounting of its cost.

Tax breaks erode support for public investments in our future

  • The proliferation of tax incentives and business tax cuts over the past two decades has resulted in several hundred million dollars each year cut from the state budget. This has undermined the state’s ability to support quality education, from pre-school through public colleges and universities, which in the long run will have serious consequences for state economic growth and prosperity.

Don’t take talkers’ comments at face value

Posted October 2, 2015 by iowapolicypoints
Categories: Economic Opportunity, Organization

Tags: , , , , ,

The shameless way the public debate can be distorted never ends. Case in point: discussion about the minimum wage.

If you were in Eastern Iowa this morning listening to Simon Conway’s program on WMT-AM radio, you would not have an accurate idea of what happened in Seattle, Washington, following that city’s first step — to $11 — toward an eventual minimum wage of $15. Confusion on this issue has occurred in Johnson County, where supervisors have approved a $10.10 minimum wage by 2017.

Peter Fisher
IPP Research Director

What actually occurred, as Peter Fisher of the Iowa Policy Project has pointed out, is that job numbers rose in Seattle after the wage was raised. See his Aug. 25 guest opinion in the Iowa City Press-Citizen. Excerpt:

There is also misinformation flying around about Seattle, which took the first step toward raising the minimum wage to $15 in April of this year. What actually occurred is that overall employment in Seattle grew after the wage was raised. … The idea that restaurants closed because of the wage hike turned out to be a myth — the owners of the four restaurants in question reported that wages had nothing to do with their decisions.

New job numbers since then show jobs to be up in Seattle — both overall and in the restaurant and drinking places category — and both over the year and since the first step of the minimum wage increase. While it would be a mistake to suggest the minimum wage is responsible, the leisure and hospitality category alone shows a net gain of 1,100 jobs since the higher minimum went into effect.*

Much number-crunching is yet to be done to enhance understanding about how the Seattle increase is now affecting and ultimately will affect the labor market in that area. But the fact that the scare tactics have had little substance behind them has been pretty clear from early on. See this Seattle Times story. Or this story.

The lesson here is not that the minimum wage increase caused an increase in jobs in Seattle — but that it’s ridiculous to say it hindered jobs.

That is, of course, if you are at all interested in the facts.

Owen-2013-57Posted by Mike Owen, Executive Director, Iowa Policy Project
Learn more about Iowa issues with the minimum wage on our website,
* seasonally adjusted jobs, Washington State Employment Security Department.

Careful with the comments, Council Members

Posted September 16, 2015 by iowapolicypoints
Categories: Economic Opportunity, Organization

Tags: , , , , , ,

As the Solon City Council decides whether to back out of a Johnson County minimum wage increase, good information is available for comparison to recent comments by council members.

Peter Fisher of the Iowa Policy Project took a look recently at what a larger increase — to $15 — would do in Johnson and Linn counties. That report is here.

Separately, we have an Iowa Policy Project fact sheet available here on how Iowans statewide would be affected by an increase to $10.10, which is the level recently established by Johnson County supervisors to be phased in by 2017.

Findings of that research contradicts many comments by council members in Solon. For example, the minimum wage clearly is not, as one suggests, “for kids to go out and have some pocket money, that sort of stuff.”

In fact, the wage has been held so low for so long that it has become is part of a larger low-wage climate in our state, so that parents account for 1 in 5 of those who would be helped by a $10.10 minimum statewide. And almost half — 46 percent — of total family income in homes with a worker making less than $10.10 an hour comes from that job.

One council member ignores a lot of people in Iowa, very likely many of his own neighbors, when he suggests this is all about part-time work. More than 4 in 10 — 43 percent — of the workers who would benefit from an increase to $10.10 in Iowa are working full time.

Finally, an observation by a third council member is particularly noteworthy — that local restaurants are having trouble finding help. Wonder why that would be? Something about low pay, perhaps? How many more would be willing to work if pay were increased? How many more would be patronizing local businesses because they could afford to do so?

It is certainly up to the good people of Solon and their leaders to decide whether to go along with the new Johnson County ordinance, and by doing so to put pressure on the state to raise the state minimum. The latter, by the way, is what some council members are quoted that what they want to see: a statewide increase. Yet with no local pressure, is that really the message they send to state lawmakers who are holding Iowa’s minimum below that of 29 other states?

Whichever way they decide, however, they should be making the decision with good information, not discredited myths.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project


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