Breaking news out of Des Moines is that many Iowa taxpayers will be eligible for an extra $54 tax credit.
This is the result of one of the most short-sighted pieces of legislation passed by the Iowa General Assembly in recent years. Lawmakers created what they called the “Taxpayers Trust Fund,” which we should call the “Giveaway Slush Fund.” It’s a pot of money to dole out to taxpayers and boast about at election time. Chances are, the “givers” won’t give you the whole picture.
Their game is an illusion, a political parlor trick: Hold down funding for key priorities, such as K-12 education, or universities, and then when revenues create a surplus, call it an “overpayment” by taxpayers.
Does anyone really believe their spin? The $120 million to be given away represents easily $120 million in services that could have been provided. For K-12 alone, a little over half of it could have been used this year to fully pay the state’s share of allowable growth at the 4 percent level lawmakers authorized. Instead, state funding only supports half of the state share.
By shortchanging school districts with funding for only 2 percent allowable growth this year despite strong revenues, lawmakers compounded a trend of squirreling away big dollars while claiming poverty. This way, they have given themselves $120 million to spend on dessert — the Giveaway Slush Fund — by choosing not to pay the state’s share of the bill for the meat and potatoes: school aid.
One Iowa columnist who has seen through this is The Des Moines Register’s Rekha Basu, who noted Sunday: “Doling out money piecemeal is a gimmick that may bring smiles to some faces but it can’t take the place of sound and consequential actions.” She’s right.
Is it really worth it to you to receive the $54, instead of putting adequate and appropriate funding back into our education system? Or cleaner water? Or safer streets? Or, well, you get the idea.
Give me a break. On second thought, don’t.
Archive for the ‘Budget and Tax’ category
Breaking news out of Des Moines is that many Iowa taxpayers will be eligible for an extra $54 tax credit.
All right! The first of the month! Always a big day for those living paycheck to paycheck. And November 1 is no exception.
Yet, for those working low-wage jobs and receiving SNAP benefits, November 1 is not as good as October 1. SNAP is the Supplemental Nutrition Assistance Program, which many know as Food Stamps. And it’s under constant attack.In Iowa, the more than 420,000 people who count on food assistance can count on less this month than they received a month ago.
Same goes for SNAP recipients across the country, as benefits drop with the expiration of small improvements that were passed in the 2009 Recovery Act.
SNAP benefits in Iowa have averaged about $116 a month per recipient — about $246 per household.* That works out to just about $1.30 per meal per person. Take a look below at what happens to that supplemental benefit when the modest improvement from the Recovery Act goes away today.
Source: Center on Budget and Policy Priorities, http://www.cbpp.org/cms/index.cfm?fa=view&id=3899
Our economy has not fully recovered from the Great Recession. And if it’s not enough that this Recovery Act improvement is expiring before the work is done, recognize that some in Congress see right now as a time to whack away further at SNAP benefits as a new Farm Bill is negotiated.
Now, we might not like to hear that some 13 percent of the state’s population is receiving food assistance. But you don’t address that issue by just cutting benefits to those people who are stuck in low-wage jobs, or are children, or are seniors, or are disabled.You need to make the jobs better, which starts with an increase in the minimum wage and pressure on Iowa businesses that pay low wages to do better. If we want a higher-road economy, we need to put a better foundation under it.
“American dream is fading for middle class”
I took this headline from the October 7 Cedar Rapids Gazette. You can imagine what the article says — that many Americans’ faith in a brighter tomorrow has been eroded.
What is not mentioned in the article are simple numbers — 50 percent of all income in the country goes to the top 10 percent and nearly half that goes to the top 1 percent. There is just not much income left for the vast majority of us.
Statistics on income distribution come from two sources, the Census and the Internal Revenue Service (IRS). Data from both agencies say about the same thing. We are a very unequal country and it is getting worse.
The newest data I found comes from a University of California-Berkeley economist, Emmanuel Saez, and available on his website. IRS data shows that the top 10 percent, families with more than $114,000 per year in income took home 50.4 percent of all income in U.S. in 2012. This is the highest percentage ever recorded for this group in a data series going back to 1917.
The top 1 percent — families above $394,000 per year in income — took home 23.5 percent of all income. Their share was slightly higher in the late 1920s, but not much.
If you want more bad news for the middle class, Saez’ analysis shows that the top 1 percent of families captured just over two-thirds of the overall growth of real incomes per family over the period 1993-2012. The 99 percent shared the remaining third. So why is that American Dream fading?
Posted by David Osterberg, Founding Director
For a couple of weeks, I’d planned to take today off. Doctor appointment, work in a few errands and odd jobs around the house, etc.
Now, wild Tea Partiers couldn’t keep me away.
No way I’m going to choose to take a day off when people I know are being forced to stay home, all for the sake of politics, and bad politics at that.
The shutdown of the federal government is an affront to self-government, to the concept of democracy in a republic.
Worse, it will have a real impact on real people. Not just the employees, some of whom are friends who live in my community — West Branch, the birthplace of President Herbert Hoover. Some are employees of the National Park Service, running and maintaining a national park; some work at the Hoover Presidential Library-Museum, part of the National Archives. But it also affects the rest of us. We all benefit from their work, some more directly than others.
Just yesterday on my way to work, I passed one of them working on railings of a bridge that children in our community cross on the way to school. She and some of her co-workers have kids in our schools, or have in the past. Wonder if she’ll be working tomorrow, I thought.
The national parks are, as a friend of mine pointed out this morning, some of the best places our country has to offer and we employ people to maintain them, preserve them and share the stories they hold. These federal employees — like those who preserve our physical and financial security — are routinely assailed by some who portray them as unnecessary and wasteful, among other things.
The portrayals say more about the portrayers than about their targets, the people we hire to do what needs doing.
And what they do needs doing, in practical terms certainly, but also because they remind us more of what unites us than of what divides us.
OK, now I’m off to my doctor’s appointment. But I’ll be back to work afterward, because blowhards in Washington can’t shut all of us down.
Posted by Mike Owen, Executive Director
The figure practically screams at you, even when it’s not in all caps, when the conversation comes to corporate tax rates in Iowa.
Here’s the thing: It’s not a real number. Not really.
That is what is known as Iowa’s “top marginal rate” on corporate income tax. And it’s not a real number because it simply does not — cannot — reflect what a business pays on all its profits. Yet that is the implication when people (especially politicians) or corporations complain about it.
A top Iowa columnist, Todd Dorman of the Cedar Rapids Gazette, this week discussed the political battles over Iowa’s latest gigantic subsidies to Egyptian fertilizer company Orascom. In his piece he expressed a note of concern about the hyperbole in those battles. Then, he turned the discussion to Governor Branstad’s desire for cuts in corporate income taxes.
It is in that discussion where the hyperbole typically has been the strongest in Iowa. We are often told — as Dorman noted — that Iowa’s top corporate income tax rate is the nation’s highest. Note the emphasis added on “top.” More on that in a moment. Dorman also noted, accurately, that Iowa “has four brackets and a tangle of special interest credits.”
Because of the latter, any serious concern for our corporate friends should evaporate. Because they’re really being taken care of quite nicely, thank you, by their friends in the General Assembly and the Governor’s Office.
Now, about that “top rate.” It applies only to Iowa-taxable corporate profits above $250,000. Iowa doesn’t tax any profits from sales outside the state, so the rate doesn’t apply at all there, which for many businesses is a significant share of profits. For all taxable profits below $250,000, rates are lower — 6 percent on the first $25,000, 8 percent on the next $75,000 and 10 percent on the next $150,000.
Before these rates kick in, the business gets to deduct half its federal income tax from taxable income, and may have other deductions or ways to shelter income from state tax.
Then, after the rates are computed and the taxes determined, the tax credits enter the picture — and state revenues exit. The state just expanded the potential for those credits by $50 million, raising the cap on a select group of credits. In the case of the Research Activities Credit, these credits not only erase all tax liability, but offer state checks for the remaining amount of the credit. Through that program in 2012, Iowa paid out almost $33 million to 130 firms that paid no income tax, because those companies had more credits than tax liability.
And you can bet the corporate execs and their accountants fully understand all these nooks and crannies in our tax code. But if you want to give them a free million or so, they’ll take it. They are smart folks, and they have proven themselves to be more skilled negotiators than Iowa’s economic development moguls.
Want to talk reform? Then recognize the real problems — that we receive less in corporate tax than we used to, and that a lot of corporate tax is not collected because of the swiss-cheese nature of our tax code. That gives us all something to talk about.
Just be ready for the hyperbole from those who don’t want to change that part of our system.
Posted by Mike Owen, Executive Director
For more information about Iowa business taxes, see these Iowa Fiscal Partnership reports:
— “Reducing Iowa Commercial Property Taxes,” by Heather Milway and Peter Fisher, April 24, 2013.
— “Amid Plans to Relax Limits, Business Tax Credits Grow,” by Heather Gibney, April 16, 2013.
— “Corporate Taxes and State Economic Growth,” by Peter Fisher, revised April 2013.
— “A $40 Million Budget Hole: Persistent and Growing,” IFP backgrounder, February 25, 2013.
— “Tax Credit Reform Glass Half-Full? Maybe Some Moisture,” IFP backgrounder, revised March 23, 2010.
— “Single Factor to Consider,” IFP backgrounder, April 2, 2008.
So, McDonald’s and VISA have teamed up to tell low-wage workers how to make ends meet.
We have a proposal for McDonald’s and VISA: Leave economic and policy analysis to us, and we won’t compete with you on burgers and debt.
The McDonald’s/VISA plan is ironic on two fronts.
First, McDonald’s is an example of a low-wage employer — the folks who have profited mightily while their employees have not. In fact, the McDonald’s/VISA plan expects the worker to have two jobs, to make ends meet on an unrealistically low budget and have money left over — “spending money,” the plan happily calls it. That “spending money” would have to cover all food, among other things.
As Iowa Policy Project research has shown, the cost-of-living assumptions by McDonald’s are too low. A bare-bones budget for a single person in Iowa with no kids is just over $20,100 (2011 figures), requiring a job that pays about $24,000 before taxes. It assumes absolutely nothing for eating out (even at McDonald’s), let alone saving for school or retirement.
Second, McDonald’s/VISA doesn’t assume any cost of consumer credit for debt incurred, other than a car payment. VISA depends upon low- and middle-income folks taking on debt and seeing it pile up. Sometimes it’s consumer debt, but debt also can come from health-care out-of-pocket costs when your budget is on the edge. This is a very real cost for low- and middle-income families, and it can be made even worse with predatory lending practices that are dealt with feebly by state and federal lawmakers.
McDonald’s/VISA’s tortured compilation of expenses, it should be noted, comes fairly close to the one-person, total basic-needs budget we computed for 2011 — but a single person without kids would not come close to making that total budget by following the McDonald’s/VISA plan. Add child-related expenses, and — whoa! — there’s a fire in the kitchen!
McDonald’s and VISA also include some handy money-saving tips in their brochure to help low-wage workers get by, like riding your bike to work. How about these tips for saving money: Don’t eat out, and tear up your VISA card.
Click here to see how our researchers — Peter Fisher, Lily French and Noga O’Connor — came up with our numbers. Setting money aside for savings? Not possible. Health insurance at $20 a month? Actual insurance and out-of-pocket costs are far greater. The idea of having “spending money” left over? Laughable at best.
But none of this is funny. It illustrates that in the real world, choices for working people in Iowa are often about how to make ends meet when income falls short. And that is the situation for about three-fourths of single-parent families and about 23 percent of all families in our state.
Instead of assuring better ways to boost income, including a higher minimum wage, much of the public policy discussion is focused on cutting back supports such as food and energy assistance, not to mention Social Security, and holding down child-care assistance. We don’t seem to recognize the need for a living wage, however that may be computed. In the end, are we even willing to support a low-wage economy?
Posted by Mike Owen, Executive Director
It’s really quite amazing what kind of arguments people will use to beat up poor people.
Such an example is in the comments section of a story in today’s Des Moines Register about the debate over the Supplemental Nutrition Assistance Program, or SNAP, commonly known as Food Stamps.
One writer, in playing to SNAP opponents, is pushing the idea that two full-time jobs at minimum wage lift a family above poverty according to the current administration. In that case, the writer implies, food assistance isn’t needed.
Let’s take a look at the actual numbers and what they mean. It’s not heavy lifting.
Actually the federal poverty guidelines as established have been consistent — and consistently faulty — through several administrations. They are seriously outdated and underestimate what is necessary to make ends meet.
The official poverty level for a family of four in 2013 is $23,550. Does anyone seriously believe a family of four can make it on that kind of income? Rent, food, clothing, utilities — the basics of just getting by — cost more than that in real life.
The Iowa Policy Project has looked at this issue and is constantly updating a more reliable estimate of what it costs to get by — our report, “The Cost of Living in Iowa,” is available on our website with county-by-county numbers that reflect this cost for varying family sizes.
You can quickly see how two minimum-wage jobs don’t get the job done.
A bare-bones family budget for a four-person family in the Des Moines area is — conservatively — $37,886 for one working parent. (Table below). That assumes $3,157 per month for clothing, household expenses, food, health care, rent and utilities, and transportation. If a second parent works you add more transportation costs, plus child care, which becomes the second-largest expense.
Next, figure in taxes — yes, they pay taxes, and a lot as a share of their income — and you get what it takes for a family just to get by. So, this absolutely no-frills budget, with no savings for school or a home or retirement, not even burgers at McDonald’s, rings up at $39,122 before taxes for one working parent, $58,520 for two.
And that means jobs that pay $14.63 an hour for each working parent, or $19.56 if one works.
Yet, at the $7.25 minimum wage, two jobs would pay $30,160. So much for the argument that two minimum-wage jobs per family solve poverty.
This helps to show why the meager Food Stamp benefit of about $1.25 per person per meal is such an important support for Iowa’s low-income working families. But while we’re at it, we could start talking about a higher minimum wage. Another day, perhaps.
Posted by Mike Owen, Executive Director
Expedia, Orbitz and Priceline have caught us sleeping in Iowa.
Closing a loophole that lets those big online travel companies collect taxes on only part of sales taxes due on hotel room bookings is just one of four measures Iowa could take to lessen the drain of funds from state coffers before they are even collected.
A new paper by Michael Leachman and Michael Mazerov at the Center on Budget and Policy Priorities (CBPP) notes the four options for states. Iowa is one of only 12 states that has failed to take any of those steps. Besides correcting the problem with revenue lost from hotel bookings, CBPP recommends:
- Broadening the tax base to include more services. While Iowa has a fairly broad base subject to sales tax, there are many exceptions to the state’s sales tax that have been successfully achieved by the business lobby. In general terms, CBPP notes that household spending has been shifting from goods to services for decades, yet most states haven’t updated their sales taxes to reflect this fact, costing states tens of billions of dollars each year.
- Enacting an “Amazon law” to require large online retailers to collect sales taxes. Purchases made through large online retailers such as Amazon or Overstock are subject to sales tax, but retailers aren’t required to collect them in Iowa and 33 other states, at a cost of over $20 billion a year. This puts Main Street businesses in Iowa at a price disadvantage vs. those multistate operations selling the same book, boots, chain saw or prom dress that caught an Iowa consumer’s eye.
- Extending the sales tax to Internet downloads. As with the Amazon loophole, the sale of computer software, music, movies, and various other goods delivered on the Internet are not taxed in 23 states including Iowa — even though those states tax the same items when sold in physical stores. Lost revenue: roughly $300 million a year.
The CBPP paper is a good look at an issue Iowa lawmakers have been reluctant to address.
This is one more way research has exposed that Iowa is permitting businesses to take advantage of its residents, by pushing the costs of public services onto other taxpayers, or damming the state’s revenue stream to block funds from flowing to the state. The Iowa Fiscal Partnership already has shown how big multistate corporations avoid corporate income taxes because Iowa refuses to close corporate tax loopholes the way several neighboring states do, and how big companies benefit from the kind of property-tax breaks passed this year. The new piece by CBPP shows sales taxes also are an area where big business makes big money at Iowa taxpayers’ expense.
All of these areas remain good targets for better, more accountable tax policy in Iowa.
Posted by Mike Owen, Executive Director
An academic heavyweight from Harvard has taken up the cause of America’s most affluent 1 percent. But his defense has done the nation’s rich no favors.
Note: This piece by IPP Senior Research Consultant Colin Gordon appeared July 2 on inequality.org at this link: http://inequality.org/defending-top-1-percent-failing/
By Colin Gordon
Harvard economist Greg Mankiw has made quite a splash with his spirited defense of the top 1 percent. His argument in a nutshell: Gains hoarded by the very rich amount to nothing more than an “entrepreneurial disturbance” in an otherwise egalitarian setting. High earners are high earners because they have made “significant economic contributions,” according to Mankiw — who goes on to proffer J.K. Rowling, Stephen Spielberg, and Steve Jobs as evidence.A lot of virtual ink has already spilled in response, much of it by the other contributors to the forthcoming issue of the Journal of Economic Perspectives that features the Mankiw essay. And the verdict, pretty decisively, is that Mankiw has it all — the backstory, the logic, the evidence, and the consequences — spectacularly wrong.
Consider the central claim that the gains of the top 1 percent are all about the supply and demand of skilled labor, that “changes in technology have allowed a small number of highly educated and exceptionally talented individuals,” as Mankiw concludes, “to command superstar incomes in ways that were not possible a generation ago.” This claim has three large holes.
First, Mankiw’s use of Rowling, Spielberg, and Jobs as examplars of the 1 percent is more than a little disingenuous. As Larry Mishel points out, drawing on the work of Jon Bakija and others, the 1 percent is largely populated by corporate executives and financial sector professionals, for whom the plaudits “innovator” and “significant economic contributor” seem somehow less apt. And, as Dean Baker reminds us, even the incomes of Rowling, Spielberg, and Jobs owe as much to government intervention — in the form of copyrights and patents — as they do to the genius of the market.
Second, there is no evidence — at the bottom of the income distribution or the top — that education or innovation has that sort of payoff. John Schmitt and Jannelle Jones, most recently in a paper on the prospects of black workers, have tirelessly made the case that wages and job quality have plummeted across the last generation — even as the experience and educational attainment of workers has shown dramatic gains. And Mishel shows that the trajectory of top incomes runs far ahead of any reasonable educational benchmark.
And finally, the counter argument — that the 1 percent’s gains reflect distortions of the market, and losses for the rest of us — is pretty powerful. In their contribution to the same Journal of Economic Perspectives issue, Mishel and Josh Bivens make the case that most of these gains, especially those flowing from a bloated financial sector and excessive executive pay, come in the forms of economic rent — income either generated through preferential status or income that exceeds the real market value of the service provided.
Mankiw closes his paper with a number of other unsupported — and unsupportable — claims, arguing in turn that the rich are already taxed enough and that rising inequality poses no threat to either economic efficiency or social mobility. By this point his argument has a sort of “pay no attention to that man behind the curtain” tone to it. Once he equates social policy with involuntary kidney donations, the tired economic orthodoxy seems more like a furious distraction than any argument at all.
Colin Gordon is Professor of History at the University of Iowa. For more on this issue, and the broader sources of our inequality, see our Inequality.Org interactive guide, Growing Apart: A Political History of American Inequality.
In the beginning, there was a CEO. And he said, “Let there be jobs.” Because he wanted to be a Job Creator, since he had heard that Job Creators get all kinds of public praise and respect, not to mention some significant perks, like being able to flash the Job Creator ID card whenever anyone threatens to raise your taxes. Others touted the ability of the Job Creator card to transfix governors and state legislators, who would then intone “We will grant you any incentives you ask for, oh wonderful Job Creator.” And amazingly, spending public money indiscriminately on Job Creators helps those public officials get re-elected. A win-win situation, at least if you leave ordinary working citizens out of the equation.
And his board of directors said, “Hey wait a minute; how about a new product first, and consumers who are willing and able to buy it.” So the CEO bought up an innovative start-up company, and conducted market studies. And it turned out that indeed there was a market for this product, and sales to be had, and profits to be made.
But the CEO discovered that his board of directors and his shareholders really wanted him to focus on that last point: profits. It turned out that maximizing profits required minimizing costs, which actually meant hiring as few people as possible. Workers, it seemed, could be a pain; they wanted to be paid, and to get benefits like health insurance, and work in safe and reasonable conditions, and maybe join a union. So the CEO set about creating as few jobs as he could, at the lowest wages that would get the skills he needed, with as little job security as he could get away with. He hired consultants to tell him how to keep them from joining unions. And he dreamed of a company that had no employees whatsoever.
As consumers spent more, the company produced more, and hired more workers. (Hmmm; seems like consumers are creating jobs. We can’t call everyone a Job Creator, though; sorry folks.) But then there was a recession, and consumers stopped buying and the CEO had to lay off half his work force. And when the economy recovered he found he could make more profits without hiring them all back, by mechanizing some operations and outsourcing others to low-paid workers overseas.
The CEO fretted for a moment. Would they repossess his Job Creator card, because he was actually destroying jobs? Well, not to worry. It turns out that you can destroy jobs right and left and that has no effect on your status. In fact, you can ship 1,000 jobs overseas and then get praised for opening a new U.S. branch that employs 50. Not just praised, but rewarded, with tax exemptions and credits and such. Things that really help that profit maximizing thing that your board is so worried about. In fact, it seemed that the more Job Creators laid off workers, the more desperate people became for jobs, and the more lavishly they showered benefits on the Job Creators. How could you lose with a deal like this?
When he read the fine print on the back of the card the CEO understood how membership actually worked: Anyone in a position to hire (and fire) was a Job Creator. Your actual record didn’t matter. Nor did anyone seem to worry about the actual source of job gains being traced to innovation, and research, and public support of universities, and public investments in transportation and other infrastructure, and broadly shared income that allowed consumers to buy the products and services that workers were producing.
So the CEO quit worrying, and sipped his martinis on the beaches of various tax havens in the Caribbean, contemplating how well deserved was his status as a Job Creator, and how nice it was to be worshipped for who you were instead of what you did.
Posted by Peter Fisher, Research Director