Posted tagged ‘Iowa Fiscal Partnership’

Policy choices are about quality, not quantity

May 28, 2014

The headline on my doorstep today says, “Legislature continues trend of passing fewer bills.” That lead story in the Cedar Rapids Gazette notes that for the fourth straight year, a divided Iowa Legislature has passed fewer than 150 pieces of legislation.

Ah, numbers. Can’t live with ’em. Can’t live without ’em. But in this case, they don’t make a lot of difference.

What matters are the words and the policies embodied in those 150 or fewer bills. It’s about quality, not quantity.

What have those bills included in recent years? Here are some key points:

  • A commercial property tax overhaul that is tainted by big benefits to huge out-of-state retailers that need no help and pay too little in Iowa tax as it is.
  • An expanded Earned Income Tax Credit that improves tax fairness for low- and moderate-income working families across Iowa.
  • Funding to assure a tuition freeze remains for a second year in regents institutions.
  • A small boost in child care assistance for working students, making them eligible for the benefit so they can get skills for better paying jobs to sustain their families.

What have those bills not included in recent years? Here are some noteworthy omissions:

  • No overhaul of the personal income-tax system to better balance tax responsibilities for all taxpayers regardless of income, or to assure revenues are kept adequate to meet costs of critical services.
  • No greater accountability on spending that is done through the corporate tax code, outside the budget process.
  • No increase in the minimum wage, stagnant at $7.25 for over six years now.
  • No broad expansion of child care access for struggling families who don’t make enough to cover costs, but make too much to receive assistance.
  • No move to battle wage theft, which we have estimated to be a $600 million annual problem in Iowa’s economy — not including the $60 million lost in uncollected taxes and unemployment insurance.
  • No long-term answers for funding of education at all levels, violating the promise of law for K-12 schools, and leaving a legacy of debt for many college students and their families.

Those are not exhaustive lists, but a statement of priorities established by agreement, stalemate or inertia. We covered some of these points in our end of session statement. Some will like the overall product of recent years, some will not. Few will ask how many bills were passed.

At least one theme weaved by this record cannot be disputed: Iowa is on record that we will not ask the wealthy and well-connected to do more. We pretend more often than not that we can meet our obligations to the citizens of Iowa without investing in the public services they require, that if we just keep cutting taxes all will be well. Every now and then we’ll say something about opportunity for all and mean it, but we’re not ready to make that a long-term commitment.

Sometimes, not passing something says as much about legislative priorities as passing it.

Owen-2013-57   Posted by Mike Owen, Executive Director

Why the tuition freeze matters

May 2, 2014

A bright spot in the just completed session of the Iowa Legislature is that lawmakers for the second year in a row have assured a tuition freeze at Iowa’s Regents universities.

The 4 percent increase in state funding for FY2015 is an important investment. It means current students will be able to keep a little more money in their pockets, and prospective students will have greater access to higher education at the University of Iowa, Iowa State University or the University of Northern Iowa.

For now, the state has stalled its trend toward sharp tuition increases — a trend similar to what’s happened at public colleges and universities across the country. A new report from the Center on Policy and Budget Priorities found that from FY2008-FY14 state funding per student at Iowa’s Regent universities decreased by 23.8 percent, leading to a 12.2 percent change in average tuition after adjusting for inflation — $854 more a year per student.

It’s a simple equation: When state funding goes down, tuition goes up and/or resources to help students are reduced. Iowa Fiscal Partnership research has shown these trends in our state, as noted in the graph below covering tuition vs. state support of Regents institutions from 2001-13.

tuitionvsstateaid

These trends shift the cost of education from the state to the students and their families. The result is that students take on more debt or have fewer choices among institutions, if they choose to attend at all. At low incomes, some students may simply choose not to enroll even though education might be what they want, and necessary to their career goals.

Excessive student loan debt has broad economic implications. It is associated with lower rates of homeownership among young adults, it can create enough stress to decrease the probability of graduation and reduce the chance that graduates with majors in science, technology, engineering and mathematics will go on to graduate school.

The economic importance of higher education will continue to grow, as getting a college degree is increasingly a prerequisite to enter the middle class. And beyond those who receive the degree, everyone in the community benefits when more residents have college degrees. An area with a highly educated workforce attracts better employers who pay better wages and this can boost an area’s economic success.

Strong state revenues offer a time to reinvest in higher education, and to return funding of services to pre-recession levels.

IPP-gibney5464  Posted by Heather Gibney, Research Associate

First Iowa Tax Day with expanded EITC

April 30, 2014

Almost unnoticed as Iowans file their state income taxes today is that many thousands of families are benefiting from a newly expanded state Earned Income Tax Credit (EITC).

Iowa legislators last year passed and Governor Branstad signed an expansion of the working family credit, doubling it from 7 percent of the federal EITC to 14 percent for 2013, and bumping it to 15 percent for this year. The increase was barely mentioned by the Governor when he signed it as part of a larger package of tax changes. Yet, as we noted recently — the boost is “arguably the most important legislation he signed last year.”

arguably the most important legislation he signed last year: doubling the Earned Income Tax Credit. – See more at: http://www.iowafiscal.org/ifp-news-statement-on-governors-address/#sthash.NzN7o0IR.dpuf

New data from 2012, compiled by the Brookings Institution, sort out by legislative district the number and percentage of tax filers who benefit from the federal EITC, on which the state credit is based. We have put that information into a new Iowa Fiscal Partnership backgrounder; the two-pager is available here. In the map below, the golder and greener the district, the greater its constituents use the EITC. In the green areas, over 20 percent of filers use the EITC.

130506-EITCmap

Iowa’s Earned Income Tax Credit is an important tool in making work pay for low-income households. We have shown how a further expansion could better fill the gap between low-wage income and a basic-needs household budget, as well as improve Iowa’s tax treatment of low-wage families.

Owen-2013-57Posted by Mike Owen, Executive Director

 

Two numbers say so much

March 6, 2014

Two numbers say so much: 140 and $36 million.

Last year, 140 companies paid no income taxes in Iowa but — through the tax code — received $36 million in research checks.

Those two numbers alone tell us two things: We have a problem with transparency, and we have a problem setting priorities.

We know those two numbers because Iowa’s Department of Revenue is required every February to report on the use of the state’s Research Activities Credit.

We don’t know enough about what’s behind those two numbers — the problem of transparency. As it’s public money, the assumption should be that we are owed full information about where every dollar is spent (a case made well by The Des Moines Register in a recent editorial). Cities, schools and counties are required to disclose this routinely.

In fairness, some lawmakers worked hard in 2009 to assure the transparency that we do have, passing a good law that required the annual reports. Before that, we had even less information. Big business fought hard to stop the law, and failed. And because we have the law, we can make several noteworthy observations that are detailed in this Iowa Fiscal Partnership backgrounder, and get some insights on who benefits, as in the table below.

Table3-RACrecipients-w

But the annual reports do not tell us — or indicate with certainty — which companies receive the benefit as checks, how much each receives or how the money is used. There is no evidence of jobs created. There is no evidence of need or of public benefit, or return on the public investment.

There is no point where we say, “Enough already. You know, Company X, you had $200 million in profits last year — we don’t really think your shareholders need Iowa taxpayers’ help when our schools can’t keep up with costs and our city water systems need updates and our roads have potholes. And, by the way, your company and your employees are better off if we take care of those priorities before we give money to you.”

This exposes the problem with budget priorities: This spending is done outside the budget process. Spending on the RAC is decided before the Legislature even convenes. It’s automatic. The decision has already been made for 2015, and 2016, and so on, and we don’t even know for sure how much it will cost — though the Revenue Department projects it to grow precipitously.

State law provides that companies are entitled to that money regardless of any other pressures on state budget choices — including cuts to education. Example: In 2013, Iowa spent that $36 million to help companies that contributed no income tax, but for the current fiscal year that started in July 2013, the state reneged on its commitment to the school funding formula. The state fell more than $60 million short of its share, leaving property taxpayers to pay it — in the same year, by the way, that legislators boasted about property-tax reform.

I think I know where we could have found $36 million of that lost school funding.

A special state panel that reviewed all Iowa tax credits in 2009 singled out the so-called “refundability” of the RAC as a special problem. It recommended eliminating refundability for big companies, which have dominated the spending on this credit. And it also recommended putting a sunset — an automatic elimination — on all tax credits after five years. To keep them going, the Legislature would actually have to take a vote on them. That is accountability.

As it stands, our Legislature does not touch this issue. Meanwhile, big and immensely profitable companies are sucking dollars away from our local schools, state universities, community colleges, local police, county mental health services, environmental quality programs and enforcement, wage and hour enforcement … well, you get the idea.

That is the budget choice being made, because our state is happily spending on autopilot with no proof of a public benefit.

Owen-2013-57Posted by Mike Owen, Executive Director

A taste of transparency

February 11, 2014

This week we will get a taste of what transparency could look like for the hundreds of millions of dollars that Iowa spends through the tax code.

We’ll only get a taste, to be sure, as what we’ll see won’t be enough. But, thanks to a law that passed against difficult and powerful lobbying interests in 2009, we do get that taste — a glimpse into who benefits from Iowa’s largest and most generous business tax credit.

It’s the Research Activities Credit (RAC), a costly little gem that has provided big companies some big checks from the state — in some cases even when they pay nothing in income tax. The Iowa Department of Revenue projects the cost of this credit to grow by more than half in the next five years, from $52.4 million to $80.3 million.[1]

projected growth of RACCould this be a shrewd investment for the state? Not likely, or at least that must be the presumption, as the beneficiaries have neither shown nor had to show the state’s real taxpayers what they get in return for the giveaway. Click here for a look at the recent history on this credit.

Projected RAC costs tableThe economic development gurus defend the RAC with little more than a “trust us” argument, which of course is not a strong enough argument for public schools, or state universities, or community colleges, or cities with law enforcement and infrastructure challenges, or counties with mental health services and emergency response challenges.

And the costs just keep rising for the RAC and many other business tax credits, with virtually no public accountability. What little that is available will come in the Department of Revenue report that is due yet this week. It will show the total amount of claims, the total amount paid as checks to companies that do not pay state income tax, and will identify companies with over half-a-million dollars in claims. Stay tuned.

[1] Iowa Department of Revenue, Tax Credits Contingent Liabilities Report, December 2013, http://www.iowa.gov/tax/taxlaw/1213RECReport.pdf

Mike OwenPosted by Mike Owen, Executive Director

Watch tax spending more closely

February 4, 2014

Iowa is behind — not that we didn’t already know that.

A new report by the Center on Budget and Policy Priorities (CBPP) examines several aspects of what states do in budget planning. Particularly noteworthy in the report for Iowa is its poor attention to the impact of tax expenditures — spending through the tax code. When we have a tax break on the books, such as a credit or exemption, it has an impact on the budget bottom line the same as if the lost revenues were spent on the other side of the ledger.

Most of this spending, as the Iowa Fiscal Partnership has shown over the years, is on autopilot. These breaks exist year to year, never requiring renewal — unlike the kind of spending we do through direct appropriations, where critical services are subjected to annual scrutiny to exist or not for another year.

Here’s why it matters, according to the executive summary of the CBPP report:

When recessions occur, states must scrutinize all forms of spending.  An important tool for this is oversight of various tax expenditures (tax credits, deductions, and exemptions that reduce state revenue), which in many ways function as spending through the tax code. This will enable states to make sound choices between the most essential tax expenditures and those the state can forgo. For example, states can regularly publish tax expenditure reports that list each tax break and its cost. And states can enact sunset provisions so that tax breaks expire in a specified number of years unless policymakers choose to extend them.

The problem in Iowa is not a lack of analysis or data. The Iowa Department of Revenue (DOR) has produced solid tax expenditure studies in 2000, 2005 and 2010. They are found here on the DOR website. And there is considerable information outside those formal studies that illustrate overall costs — primarily a so-called “tax credit contingent liabilities report” offered three-to-four times a year by DOR for use by the Revenue Estimating Conference. Furthermore, a number of important tax expenditures have been the subject of in-depth reports to the legislative committee charged with reviewing tax credits.

So in what way is Iowa behind the curve? The CBPP report lists 10 ways states can better budget for the future, including one on the tax-expenditure oversight issue:

Oversight of tax expenditures:  expiration dates for tax expenditures after a set number of years to subject them to regular scrutiny of their cost and effectiveness, in addition to tax expenditure reports that list the costs of individual tax breaks.

Such expiration dates are called “sunsets.” A special Tax Credit Review Panel appointed by then-Governor Culver in the wake of the 2009 film-credit scandal produced a set of strong recommendations for reform, among them a five-year sunset on all credits. This proposal was ignored.

Furthermore, a review of tax credits on a five-year rotation set up by lawmakers in response to that panel’s recommendations has produced no apparent policy change; this perhaps is not surprising since the committee that reviews the credits has not issued findings that the credits are meeting the intent of policy, or producing a return on the taxpayers’ investment.

The bottom line is this: Unless tax expenditures sunset, there is little incentive for legislative committees to take evaluations seriously.

Mike OwenPosted by Mike Owen, Executive Director

With ALEC, it’s not just ‘Who?’ but ‘What?’ and ‘Why?’

January 10, 2014

Some Iowa legislative leaders are taking issue with claims that all Iowa legislators are members of the American Legislative Exchange Council (ALEC).

See these links:

All of this calls to mind the words of the great comedian Groucho Marx, who is widely quoted:

“I don’t want to belong to any club that will accept people like me as a member.”

Groucho presumably was never a member of ALEC — like many Iowa lawmakers now protesting claims of their inclusion. But regardless of who belongs to ALEC, the bigger issue is whether ALEC belongs at the public policy table.

Iowa Policy Project analysis has refuted the value of legislative initiatives promoted by ALEC, which is essentially a bill mill backed by corporate interests. IPP’s Peter Fisher and the national group Good Jobs First, in their 2012 report “Selling Snake Oil to the States,” showed that states following ALEC proposals were likely to show worse economic results than other states.

As Fisher noted at the time:

“We tested ALEC’s claims against actual economic results. We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.”

This recalls another quotation:

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

No, that is not the ALEC mission statement. Again, they are words widely attributed to Groucho Marx.

But if the shoe fits ….

Mike OwenPosted by Mike Owen, Executive Director

A new look for the first of the month

November 1, 2013

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.

 SNAPmonthlyCut-1-31-13

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.

Mike OwenPosted by Mike Owen, Executive Director

* Iowa Department of Human Services, Food Assistance Program State Summary for September 2013, Report Series F-1.

Why, again, would it make sense to cut SNAP?

September 17, 2013
Mike Owen

Mike Owen

This week, the U.S. House of Representatives will be considering severe cuts in the Supplemental Nutrition Assistance Program, or SNAP, formerly known as food stamps. Already, SNAP benefits are scheduled to be cut in November because Recovery Act improvements will expire. Any discussion among Iowans about even more SNAP cuts should not miss this context:

Food security remains a serious challenge. In Iowa, the latest report from USDA suggests this has risen by almost one-third in the last decade, from 9.1 percent in 2000-02 to 12.6 percent in 2010-12. (three-year averages) The increase is even greater proportionally for families in more severe situations. See this information from the Iowa Fiscal Partnership.

SNAP use certainly has risen in the last several years — just as it was supposed to in tough times. We have not fully recovered from the Great Recession, but things are getting better and SNAP use will level off and decline as we recover. CBO predicts SNAP spending nationally to fall to 1995 levels by 2019. See this report from the Center on Budget and Policy Priorities.

SNAP is only a supplemental benefit, but a critical one even at only about $1.25 per meal per person in Iowa. We show the share of Iowans who benefit from SNAP, by county and by congressional district, in maps on our Facebook page  (compiled from Iowa Department of Human Services reports and U.S. Census data). By the numbers, here is the share of the population in each Iowa congressional district receiving food assistance in July:

1st District — 12.3 percent; about 94,000 people.
2nd District — 15.8 percent; about 121,000 people.
3rd District — 14.7 percent, about 115,000 people.
4th District — 12 percent, about 91,000 people.
Here’s the county-by-county look (note, the golder and greener a county, the greater percentage of the population receives food assistance):
CI-MapTemplate

The House bill would end categorical eligibility, which permits states to provide access to SNAP benefits for families just above the SNAP earnings limit of 130 percent of poverty. Iowa in 2008 used this option to expand gross income eligibility to 160 percent of poverty. An Iowa Fiscal Partnership policy brief last November noted this is particularly important for low-income working families with children, particularly when child care takes such a big bite out of their budgets.

SNAP is a work support. Contrary to the claims of detractors, SNAP is one of those benefits that enable people to take jobs they otherwise would not be able to accept. When we have an economy that is producing jobs that pay below what is needed to get by, these work support programs are critical. We have illustrated the issues there with our Cost of Living in Iowa research, where we have demonstrated that even at median wage, many Iowa families would not get by were it not for work support programs.
Posted by Mike Owen, Executive Director

Hyperbole Alert: The drumbeat to cut corporate taxes in Iowa

July 24, 2013
Mike Owen

Mike Owen

TWELVE PERCENT!

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.


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