Tax-cutters’ lack of confidence

Plans for election-year tax cuts expose tax-cutters’ lack of confidence that (1) cuts they already made will deliver prosperity, and (2) they will hold power beyond 2020.

In the confidence game of cutting taxes, where the world is promised to all but delivered mainly to the wealthy, Iowa’s tax-cutters are showing how little confidence they have in their own political talk.

State Senator Randy Feenstra of Hull is backing off his chairmanship of the Senate Ways and Means Committee as he runs for Congress in 2020, leaving the door open to Senator Jake Chapman of Adel.

Both have been big talkers painting the glories of tax cuts while running down Iowa’s competitive tax structure, and they have been successful using that political spin to make big changes — many of which are scheduled but yet to take effect.

Even then, they apparently will waste no time in rushing through new tax cuts, as evidenced by this story in the Cedar Rapids Gazette. There, Chapman is quoted that “he expected the Legislature would continue next session ‘to reform income taxes and reduce some of the highest tax rates in the country.’”

Before addressing the fundamental inaccuracy of the senator’s comment, one must wonder at least two things:

•   Are they not confident what they have passed already will not deliver what they promised?
•   Are they not confident they will retain political power through the Statehouse (the House is a much closer partisan split than the Senate) past the 2020 election?

Answering “yes” to either would explain their perceived need to rush more ill-advised tax policy into law.

In a very short span, Iowa lawmakers have eroded revenues with new tax giveaways to the wealthy and powerful, leaving scraps to working families in the middle and below. This has come with changes in personal income taxes, corporate income taxes and property taxes.

As Peter Fisher and Charles Bruner pointed out in an Iowa Fiscal Partnership analysis, the income-tax cuts passed in 2018 give almost half of the overall benefit to the highest-earning 2.5 percent of taxpayers — those making $250,000 or more.

Senator Chapman plays games with the term “tax rates” as if the highest tax rate is what anyone ever paid on all their income. It’s an illusion.

The highest rate — already reduced from 8.98 percent to 8.53 percent this year under the 2018 law — is a marginal rate; it is paid on only the highest share of income. The same taxpayer who pays the highest rate on one share of income also pays the lowest rate on the share of income where that rate applies.

In short, it’s a mix of rates — and they are applied to taxable income, which has many adjustments to lower that amount. Most notable among those is Iowa’s unusual provision to allow taxpayers to deduct federal income tax from state taxable income, which benefits higher-income people the most.

The tax-rate myth promoted by Senator Chapman is an old game, but the people who want to reduce public services and investments in the future keep playing it. And why not? They’re getting away with it.

The 2018 legislation includes ongoing rate cuts — if revenues reach high-enough levels. One reason to pass rate cuts again in 2020, before that deadline, is that you don’t expect the revenue targets to be met.

These changes have come at great cost to public services, including poor funding of public education from K-12 through community colleges and universities.

Looking ahead to the future of our state, and beyond the next election, would be the wisest course for Iowa tax policy. That is not what we’re getting.

Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership, a joint effort of IPP and the nonpartisan Child and Family Policy Center in Des Moines. mikeowen@iowapolicyproject.org

Dumbing down definition of poverty

The CBPP report illustrates that the Trump plan would magically declare that some people below the current poverty line are no longer poor.

If you wanted to reduce the number of people defined as being in poverty, without reducing poverty itself, what might you do? You could always mess with the numbers.

The Center on Budget and Policy Priorities has a solid report out today showing how a Trump administration proposal would do just that. Authors Arloc Sherman and Paul van de Water examine the administration’s proposed alternative to the way cost-of-living adjustments are made to the official poverty guidelines.

The first problem, of course, is that the official poverty guidelines have almost nothing to do with the cost of living. They are an outdated formula — they are a half-century old while, not surprisingly, families’ spending needs have changed. We have shown this regularly at the Iowa Policy Project with our Cost of Living in Iowa research.

Here is what our report, by Peter Fisher and Natalie Veldhouse, noted last year:

Cost of Living Threshold Is More Accurate than Federal Poverty Guideline

Federal poverty guidelines are the basis for determining eligibility for public programs designed to support struggling workers. However, the federal guidelines do not take into account regional differences in basic living expenses and were developed using outdated spending patterns more than 50 years ago. The calculations that compose the federal poverty guidelines assume food is the largest expense, as it was in the 1960s, and that it consumes one-third of a family’s income. Today, however, the average family spends less than one-sixth of its budget on food. Omitted entirely from the guideline, child care is a far greater expense for families today…. Transportation and housing also consume a much larger portion of a family’s income than they did 50 years ago.

Considering the vast changes in consumer spending since the poverty guidelines were developed, it is no wonder that this yardstick underestimates what Iowans must earn to cover their basic needs. Figure 1 above shows that a family supporting income — the before-tax earnings needed to provide after-tax income equal to the basic-needs budget — is much higher than the official poverty guidelines. In fact, family supporting income even with public or employer provided health insurance ranges from 1.1 to 3.0 times the federal poverty guideline for the 10 family types discussed in this report. Most families actually require more than twice the income identified as the poverty level in order to meet what most would consider basic household needs. Even with public health insurance, the family supporting income exceeds twice the poverty level in all cases except the two-parent family with one worker.

Because the guidelines do matter in the computation of eligibility for work-support programs, it is essential that they are not eroded further to disadvantage low-income families. As the CBPP authors note, not only is the poverty line itself too low to reflect basic needs, but the annual cost-of-living adjustment, the Consumer Price Index for All Urban Consumers (CPI-U), also is flawed:

Prices have been rising faster than the CPI-U does for the broad categories of goods and services that dominate poorer households’ spending. The poorest fifth of households devote twice as large a share of spending to rent as the typical household, for example, and the cost of rent rose 31 percent from 2008 to 2018, compared to 17 percent for the overall CPI-U. In addition, recent studies find that low-income households may face more rapidly rising prices than high-income households even for the same types of goods, possibly because low-income households have fewer choices about where and how to shop.

The Trump plan would make that worse, substituting another cost-adjustment measure that slows the pace of upward adjustments in the poverty guidelines. The plan would magically declare that some people below the current poverty line are no longer poor.

Messing with the numbers is never an answer to identifying the challenges one might address with better public policy. Seriously analyzing the relevant ones is essential.

Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

Transparent realities of bad law

To be transparent, lawmakers and the governor would admit they are enshrining minority rule, punishing public workers again, and penalizing economic growth and recovery.

curtains-tighterIn the closing nights of the 2019 session, while most Iowans slept, the Iowa Legislature enacted substantial changes to the way city and county governments fund public services.

There was no chance for public input, or for analysis by legislative staff. With no apparent sense of irony, the bill’s supporters argued the purpose was to increase transparency for voters.

On Thursday, Governor Reynolds signed the bill out of the public eye, issuing only a one-sentence statement repeating the same claims and ignoring the real impacts.

In this one bill, the Legislature managed to enshrine minority rule, punish public-sector workers (yet again), penalize economic growth, and hamstring cities and counties recovering from a natural disaster.

The bill will limit the growth of property taxes levied by cities and counties to 2 percent each year. Local elected officials will need a two-thirds vote to do more, if they find that their constituents’ needs demand it. So much for majority rule and local democracy.

The bill threatens city services and the local public workers who provide them. Employee benefits, such as health insurance and contributions to pension funds, until now could be financed by a special tax rate, in recognition that the rising cost of health insurance and fixed pension contributions are outside city or county control. These costs have been increasing more than 2 percent annually, often much more. But now they go under that arbitrary 2 percent cap.

There was much attention — deservedly so — to how various versions of the bill would affect IPERS pension benefits. This ultimately served to distract many from much broader impacts.

When pension contributions and health insurance premiums increase more than 2 percent, the city or county may have to reduce services, cut benefits, or lay off workers to keep overall tax growth under the cap. The bill pits taxpayers against the people who plow their streets, protect their homes, build roads, or maintain parks and libraries.

When services are cut, public employees can be portrayed as the scapegoats, which will be convenient to the forces that have threatened public employee pensions. Turning Iowa’s secure pension programs over to less-secure, privately run for-profit administrators remains a goal for those forces.

The new bill also penalizes local governments for pursuing growth. A last-minute change in the legislation puts revenue from new construction under the 2 percent cap.

As a result, cities and counties experiencing significant growth may be forced to cut rates year after year and will find themselves without the revenue to support the growth if they can’t muster the supermajority. For example, a city growing at 4 percent per year would face a revenue penalty of 17 percent within five years.

Another last-minute change left in place existing levy limits, which would have been abolished under both earlier bills. So now cities and counties face two limits, one on rates and another on revenue growth.

The combination could be devastating in some circumstances. Consider a flood, or a recession causing a loss of property value. The rate cap forces revenues to decline for any city or county at or near the rate limit, which includes the vast majority of localities.

Then, as the recession ends or the city rebuilds, the revenue cap could now undermine recovery. The reduced revenue becomes the new starting point, potentially leaving a city or county unable to restore revenues even to the previous level because of the 2 percent limit on revenue increases. And this just at a time when extraordinary measures are needed to help the recovery.

One has to wonder if more transparency in the process might have helped legislators find a better outcome — or at least helped their constituents to argue for one.

Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City. Contact: pfisher@iowapolicyproject.org

Editor’s Note: This post updates and expands upon a previous post about this legislation, prior to the governor’s signing of the bill.

Mother’s Day topic: Fostering opportunity

Enjoy brunch on Mother’s Day, but have a good discussion at the table. There are ideas on the table in Washington about what is needed to help all mothers care for their families.

Mother’s Day is always a good time to focus on public policies that can make mothers’ important jobs easier.

Too often, policy makers look the other way as wages and work supports erode. Costs rise, debt mounts, children grow, and bills pile up. The challenges become daunting.

One proposal on the table would give mothers in low- and moderate-income families a break. The Working Families Tax Relief Act would help 23 million mothers across the country — and 211,000 in Iowa, 158,000 of them working — to look forward.

The proposal would strengthen both the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) — again, a benefit to millions nationally, kids in low- and middle-income families, according to estimates by the Center on Budget and Policy Priorities (CBPP). These benefits would be shared broadly across racial groups.

In Iowa alone, the plan would benefit 472,000 Iowa children, according to CBPP.

The proposal strikes a stark contrast to the 2017 tax law that targeted benefits heavily toward wealthy households and corporations — not working families. The principal so-called “middle class” tax cut in that bill was a very meager increase in the CTC, from $1 to $75, to 87,000 children in low-income working families in Iowa.

As CBPP’s Chuck Marr notes in this blog post, a single mother of two who makes $20,000 as a home health aide, for example, would see a boost in her CTC by $2,210 and her EITC by about $1,460 — a total gain of about $3,670.

Working parents at lower levels of income need to be able to afford basic necessities, home and car repairs or other costs of transportation and education or training to get better jobs. The EITC and CTC are critical supports that make work pay for families in low-income situations.

Mother’s Day is a good time to honor those values that we all share. So, go to brunch if you want, but don’t avoid this discussion at the table.

Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City.

mikeowen@iowapolicyproject.org

Questions — before the answer comes

Whether it’s your job to sign or veto the property tax limitation bill hatched in back rooms of the Iowa Statehouse, or simply to evaluate it as a citizen watching the process (and ultimately paying the price for it), you should be able to answer these questions.

As Governor Kim Reynolds mulls SF634, the property tax limitation bill, there are many questions anyone would have to consider — questions that did not get an adequate hearing before the rush to passage of a backroom-built bill in the waning hours of the 2019 Iowa legislative session.

1)   Why an arbitrary 2 percent limit on new tax revenues? No matter what increasing costs an individual community may face to provide public services, the bill limits growth in revenues to 2 percent.

2)   Why penalize growth? No matter how much property valuation grows in good times, the revenue limits would restrict the public services needed to service a growing community.

3)   Why penalize recovery from disaster? Reduced property value under tax levy limits will reduce revenue for critical public services in recovery.

4)   Why take local tax decisions out of the hands of locally elected officials? It’s never easy for local officials to raise taxes — taxes they also pay — but the bill substitutes the arbitrary will of state legislators for the judgment of board and council members the voters choose to make local decisions.

5)   Why hinder jobs, encouraging local cuts in public service jobs by putting special levies for employee benefits such as pensions under the new, artificial and arbitrary general revenue cap?

6)   Why encourage a reduction of health benefits for local public service employees by putting those costs under an arbitrary revenue cap?

7)   Why should a “no” vote count twice as much as a “yes” vote? That is the effect of the two-thirds super majority required to go above legislative mandated 2 percent revenue growth. Local officials would have to reach that threshold in many cases with actually more than two-thirds approval: four “yes” votes on a five-member board or council, five if there are seven members — and that is the case even if revenues exceeding 2 percent growth would mean a decrease in tax rates!

8)   Why reward backroom deals in the name of transparency? There was no opportunity for a public debate on this deal hatched in the waning hours of the legislative session. There was no transparency in the process.

Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City.

mikeowen@iowapolicyproject.org

 

Be sure to see this Iowa Fiscal Partnership backgrounder by Peter Fisher of the Iowa Policy Project for more information about the actual property tax trends in the state — trends ignored by proponents of the legislation who offered a false narrative about this issue.

Also see this blog by Peter Fisher.

Water funding exposes shallow commitment

Recent initiative fails to meet needs to improve Iowa water quality

Voters have indicated their support for increasing funding to improve water quality in Iowa, earmarking part of the next sales tax increase for clean water. So far, the protected trust fund for outdoor recreation and water quality remains empty.

Our latest water quality report addresses these issues:

  • What has been the state’s spending commitment to water quality over the past 15 years?
  • How much of state and federal dollars goes to reduce nutrient pollution in Iowa?
  • How much spending is needed to make meaningful water quality progress?
  • How can the state raise adequate revenue to make an impact?

We identified 16 primarily state-level programs that fund water quality improvements. Funding in the most recent year hasn’t even reached 2008 to 2009 levels.

The Nutrient Reduction Strategy (NRS), implemented in 2013, was created to reduce nutrient pollution that creates a hypoxic dead zone in the Gulf of Mexico. The strategy was advertised as a new commitment by the state to reduce Iowa’s pollution of our own rivers and the Gulf of Mexico. Even with the NRS, we find that state water quality spending has dropped off and struggled to return to pre-2008 recession levels.

190424-WQ-Fig1

The Water Resources Coordinating Council is tasked with overseeing NRS progress, and measures the financial resources dedicated to reducing nutrient pollution from the state of Iowa to the Mississippi River system. The most recent NRS report shows $512 million was spent in state and federal dollars on Iowa nutrient reduction in 2017.[1] However, the state is largely riding the wave here; the real money comes from federal funding.

While it was assumed that adopting the NRS would increase Iowa’s commitment to water quality, it did not — though at the same time pollution has increased. Recent research indicates Iowa’s share of nutrient loading into the Mississippi and Missouri river watersheds actually increased between 2000 and 2016.[2]

In 2018, Governor Kim Reynolds signed a bill that appropriates $282 million to water quality efforts over the next 12 years.[3] This gesture compares poorly even to existing — and lacking — government water quality spending. Iowa is nowhere near to what is needed.

How much money does it really take to make a meaningful impact on Iowa water quality? The NRS document, written mainly by Iowa State University, estimated the cost of reducing nonpoint contamination under three scenarios. All were in the billions of dollars.

The Iowa Soybean Association estimates for nutrient reduction costs in just one river basin, the Lime Creek Watershed,[4] implies a statewide need of $1.4 billion a year for about 15 years. These estimates demonstrate the inadequacy of the 2018 spending bill.

Current investments are not resulting in discernible improvements in Iowa’s water quality. Two options available for generating the amount of revenue needed include removing the exemption of fertilizer used in agriculture and taxing it like other commodities.

A second option is fully funding the environmental trust that voters approved in a statewide referendum in 2010. Estimated revenue from either of these sources would bring more than $100 million per year. We need to tap new sources to make our state commitment to water quality equal to the task. Until then, we are only paying lip service to the problem.

[1] Iowa Water Resources Coordinating Council, “Iowa Nutrient Reduction Strategy 2017-2018 Annual Progress Report. Page 9.

http://www.nutrientstrategy.iastate.edu/sites/default/files/documents/NRS2018AnnualReportDocs/INRS_2018_AnnualReport_PartOne_Final_R20190304_WithSummary.pdf

[2] Christopher Jones, Jacob Nielsen, Keith Schilling, & Larry Weber, “Iowa stream nitrate in the Gulf of Mexico.” April 2018. PLOS. https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0195930&type=printable

[3] Brianne Pfannenstiel, “Reynolds signs water quality bill, her first as governor.” January 2018. https://www.desmoinesregister.com/story/news/politics/2018/01/31/reynolds-signs-water-quality-bill-her-first-governor/1082084001/

[4] Iowa Soybean Association Environmental Programs & Services, “Lime Creek Watershed Improvement Plan: A roadmap for improved water quality, sustained agricultural productivity & reduced flood risk. N.D. https://www.iasoybeans.com/search/?q=lime+creek

 

2018-NV-6w_3497(1)

 

Natalie Veldhouse is a research associate for the nonpartisan Iowa Policy Project. nveldhouse@iowapolicyproject.org

Courageous words about ‘timid’ funding

Even a farm group may face consequences for daring to challenge Iowa’s poor funding of water quality efforts.

Even farm groups dare not question the timid funding of water quality

Recently the Cedar Rapids Gazette reported a slapdown of the Iowa Soybean Association by the Iowa Legislature.

Thanks to reporting by Erin Jordan of The Gazette, we learn now that a year ago, legislators were angered by comments from Iowa’s main soybean group that Governor Kim Reynolds’ first bill as governor — new money for water quality — was “timid.”

Partly because of that remark, the Gazette reported, legislators stuck back against the group by taking $300,000 in state funds away. Ironically, those funds had gone for research on water quality improvement.

In her article, Soybean group pays price for calling water bill ‘timid’, Jordan reported:

The Soybean Association had received $400,000 a year in state funding for the On-Farm Network, a program that helps farmers gather data to better manage nitrate fertilizer application on their cornfields. More precise application means less money spent on fertilizer and less excess nitrate washing into lakes and waterways.

IPP used some of the data collected by the Iowa Soybean Association in our recent report on water quality funding by the state. We called our paper “Lip Service” since that is about all Iowans are getting from their top leaders in response to widespread concerns about water quality in the state.

The Iowa Soybean Association research was very good. We found it to be the best out there on what improving nutrient pollution from agriculture was likely to cost. Now, that research has been curtailed because that organization had the temerity to tell the truth about the big talk and little money the state gives to improve water quality in the state.

To read our report or a one-page executive summary, visit the Iowa Policy Project website at http://www.iowapolicyproject.org.

David Osterberg is lead environment and energy researcher at the Iowa Policy Project, which he co-founded in 2001.

dosterberg@iowapolicyproject.org