Posted tagged ‘Iowa Fiscal Partnership’

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.

We promise: We won’t cook burgers

July 18, 2013
Mike Owen

Mike Owen

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.

From “The Cost of Living in Iowa,” on IPP website

From “The Cost of Living in Iowa,” on IPP website

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

Why SNAP matters: Wages aren’t always enough

July 11, 2013
Mike Owen

Mike Owen

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.

120523-app-04-dm-w

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

Asleep at the Switch in Iowa

July 9, 2013
Mike Owen

Mike Owen

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


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