Enriching the minimum wage discussion

History shows the minimum wage was meant to be a meaningful policy tool to help working families, not limited to “entry level” work or teens. In fact, efforts to establish the wage came as policy makers were trying to remove young teenagers from the workforce.

The spin against any minimum wage increase — or even having a minimum wage — has become predictable. This should surprise no one. Policy makers since President Franklin D. Roosevelt have battled the same stuff.

A little relevant history might be just what is needed as Iowans consider the arguments for a national, state or even local increase, which passed in Johnson County.

History shows the minimum wage was meant to be a meaningful policy tool to help working families, not limited to “entry level” work or teen wages. In fact, efforts to establish the wage came at the same time policy makers were trying to remove young teenagers from the workforce.

The U.S. Department of Labor website has an interesting paper published almost 40 years ago by a DOL historian, Jonathan Grossman: Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage In it, Grossman relates a story about a young girl’s note to Roosevelt, telling of pay being cut from $11 a week to between $4 and $6 a week. 

To a reporter’s question, the President replied, “Something has to be done about the elimination of child labor and long hours and starvation wages.”

“Starvation wages” are your concern if you expect the wage to be meaningful to a household budget.

Interestingly, Iowa Policy Project research shows what is needed for a household budget. In Linn County, where a very low $8.25 has been suggested by a split task force, a single parent needs to make between $21 and $25 an hour to support a household on a bare-bones, basic-needs budget without public supports. In Polk County, it takes between $22 and $27 for a parent in similar circumstances.

IPP and Economic Policy Institute analysis also show this issue is scarcely about teens. Statewide, more than 4 out of 5 workers affected by an increase to $12 are 20 years old or older. A quarter of them have children. Over half of them work full time. On average, they account for over half of their family’s total income.

County supervisors in Johnson County have taken the baton across generations from FDR, to assure families have a chance. They acted last year to raise the local wage in three steps to $10.10 by next January 1, and they have already taken two steps, to $9.15.

Discussions are moving ahead in Polk County, Linn County and Lee County. Passing a local wage is a significant signal to state leaders that they are through waiting for action. Any county must consider whether the content of its action is significant as well — however bold it may seem to pass local law on this issue, the amount does matter.

And for those who say, “Let the market handle it,” just wake up. Clearly, it does not. As FDR stated in 1937:

The truth of the matter, of course, is that the exponents of the theory of private initiative as the cure for deep-seated national ills want in most cases to improve the lot of mankind. But, well intentioned as they may be, they fail…. (T)hey have no power to bind the inevitable minority of chiselers within their own ranks.

Though we may go far in admitting the innate decency of this small minority, the whole story of our Nation proves that social progress has too often been fought by them. In actual practice it has been effectively advanced only by the passage of laws by state legislatures or the National Congress. [1]

Do we value history? Do we value work? Do we value families? Do we value practical solutions through public policy? We are about to see.

[1] Franklin D. Roosevelt: “Message to Congress on Establishing Minimum Wages and Maximum Hours.,” May 24, 1937. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=15405.

owen-2013-57By Mike Owen, Executive Director of the Iowa Policy Project.

Contact: mikeowen@iowapolicyproject.org

Ignore ideologues — IPERS sound, stronger

Time seems to be running out on those who do not want a stable, secure and sustainable retirement program for public employees. IPERS, the Iowa Public Employment Retirement System, is well on the way to recovery before its opponents can kill it. But they’re still trying.

The criticism this time comes in a Des Moines Register opinion piece, from a familiar source, the Public Interest Institute (PII) in Mount Pleasant.

In its latest ideological attack on IPERS, PII offers no data — not a single financial indicator — to demonstrate a problem. In fact, IPERS is rebounding from troubles brought on by the Great Recession and inadequate state contributions in the latter half of the last decade.

According to the latest IPERS annual report, IPERS’s ratio of funded actuarial assets to liabilities — which had dropped from 89.1 percent in FY2008 to a low of 79.9 percent in FY2011 — has continued to rebound, rising in FY2015 from 82.7 percent to 83.7 percent.

In an Iowa Policy Project report in late 2013, Imran Farooqi, Peter Fisher and David Osterberg showed that contrary to high-profile examples of public pension problems with the city of Detroit and the state of Illinois, the public employee pension systems in Iowa and most states were generally healthy and well-managed for the long term.

“Iowa’s public pension plans have sufficient assets to pay benefits now and well into the future. And recent improvement in the plans’ designs have already enabled them to begin recouping losses incurred during the recessionary stock market decline,” they wrote. Now, 2 1/2 years later, there is no indication of a change in that positive trend.

That report did recommend ways to strengthen IPERS and other public employee retirement plans in Iowa, such as increasing contributions and meeting actuarial recommendations for those contributions.

What we need to remember is that the purpose of IPERS is not to see how little we can pay public employees, but to attract good employees partly with a promise of a secure retirement. It is to “improve public employment within the state, reduce excessive personnel turnover, and offer suitable attraction to high-grade men and women to enter public service in the state.” This is the stated purpose of the law, Chapter 97B.2.

The biggest problem for PII is that IPERS may fully recover before PII gets the law changed to a less secure “defined contribution” system. A defined benefit system provides financial security by pooling risk in the group — more efficient than having everyone on their own based on defined contributions that they might outlive.

So let’s be clear: Shifting from a defined benefit plan like IPERS to a defined contribution plan, such as a 401(k), is a way to cut benefits and reduce retirement security.

We can spend our time better addressing real concerns to assure our public employees can deliver on public education, overseeing human services, policing our streets and guarding prisoners — and making sure they can retire securely when they are done working for us.

owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project
mikeowen@iowapolicyproject.org

Minimum wage: When leaders won’t wait

When state lawmakers won’t act, local officials may well take matters into their own hands.

The Iowa Legislature adjourned the 2016 session 10 days past its target, but the timing could not have been much better.

Two days after adjournment — with no action on the state’s long-outdated $7.25 minimum wage — the second step of Johnson County’s local minimum-wage increase took effect Sunday.

The minimum wage in Johnson County moved from $8.20 to $9.15, with the final step to $10.10 scheduled for Jan. 1, 2017.

Johnson County supervisors acted last year because the state Legislature and U.S. Congress had not. Other counties in Iowa may see a need to follow suit if the state cannot move off the $7.25 level established on Jan. 1, 2008.

Working Iowans are trying to support families on minimum wage or slightly above because employers can get away with paying that below-poverty amount. Someone has to look out for low-wage workers when their employers refuse to do so.

Those employers benefit immensely from taxpayer support of education, law enforcement, roads and other public structures, not to mention direct subsidies or tax breaks.

The minimum wage is one way to establish accountability — and not just for business but for our political leadership as well. When state lawmakers won’t act, local officials may well take matters into their own hands.

Owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project
mikeowen@iowapolicyproject.org

A squeaky wheel is heard — but not fixed​

The weak House attempt to satisfy Davenport on school funding inequities is a sign that a squeaky wheel is being heard. But the whole statewide axle is rusty.

Davenport has been the squeaky wheel on school funding inequity in Iowa, and the Iowa House this week tried to apply a drop of oil. Problem is, the whole axle is rusty, and cracked.

By law, 164 school districts — about half of Iowa’s 330 districts — are held $175 below the maximum per-pupil spending amount used to set local school budgets. In fact, almost 84 percent of school districts in the state are $100 or more below the maximum (graph below).

Basic RGB

On Tuesday, the House passed an amendment, H8291, that dealt only with the squeakiest wheel — Davenport — and only for a one-year fix.

Davenport is not buying. In a Quad-City Times story, Davenport lawmakers were not happy. Their school superintendent, Art Tate, called it “no help at all,” and for good measure, put the focus where it needs to be.

Wrote Tate in an email to the Times: “It does not address the moral imperative to make every student worth the same in Iowa.”

The larger question, given that moral imperative, is why more districts aren’t more active on this issue. One reason could be that Iowa’s inequities, while real, do not rise to the level of what might be found in other states.

Another reason might be that just fighting for basic school funding is hard enough, when the Legislature is setting a seven-year pace of funding growth below 2 percent despite faster growth in district costs, strong state revenues and approval of more business tax breaks.

160324-AG-SSA-history

We’re in the closing days, perhaps the closing hours, of the 2016 legislative session, with exceedingly few successes for education and working families. It’s too late in this session to expect real reform of the school funding system, pleas for which have come for many years — and focus on more than the per-pupil cost. There are other equity problems, the largest of which is in funding transportation services.

The weak House attempt at a one-year fix for Davenport, however, is a sign that the squeaky wheel is being heard. Think of what might happen if more wheels squeaked.

Owen-2013-57Posted by Mike Owen, Executive Director of the nonpartisan Iowa Policy Project.
mikeowen@iowapolicyproject.org

Wrong again: ALEC can’t pick its own ‘winners’ among states

The 20 states that performed best on the four measures of income actually score much worse on ALEC’s ranking than the 20 states with the lowest income.

ALEC — the American Legislative Exchange Council — persists in peddling “research” that knocks down its own policy ideas.

In its latest edition of Rich States, Poor States, just released, ALEC’s Economic Outlook Ranking scores states on 15 measures reflecting ALEC’s preferred policies towards business. Our Grading the States analysis has exposed the flawed methodology of ALEC’s report, but the authors have not changed it for the 9th edition.

ALEC’s dilemma: The index purports to predict which state economies will perform the best, but in fact there is no relation between a state’s score and how well the economy grows subsequently.

Since the first edition in 2007, it remains the case that ALEC’s “best” states — the ones with the highest rankings — are actually poorer on several measures than the supposedly “worst” states. The graph below has been updated to reflect the 9th edition rankings and the latest income data.

Basic RGB

The 20 states that performed best on the four measures of income (the actual rich states) actually score much worse on ALEC’s ranking than the 20 states with the lowest income (the actual poor states).

In its fervent anti-government bias, the report offers a package of policies — for fiscal austerity, suppressing wages and imposing proportionately higher taxes on low-income people — with a promise of economic growth, when it really is a recipe for economic inequality, declining incomes for most citizens, and starving public infrastructure and education systems of needed revenue.

2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and developer of IPP’s Grading the States website, GradingStates.org.

 

 

IPP’s Cost of Living: A better measure

One reason we produce our Cost of Living in Iowa research is to offer a better picture than official definitions of what it takes for a family to get by.

Cost of Living Threshold Is More Accurate than Federal Poverty Guideline

Why do we produce our Cost of Living in Iowa research at the Iowa Policy Project? One reason is accuracy — to offer a better picture of what it takes to get by, rather than a vague concept of “poverty.”

Federal poverty guidelines are the basis for determining eligibility for public programs designed to support struggling workers. But those official guidelines have challenges that we address with basic-needs budget calculations in The Cost of Living in Iowa.

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.

For example, 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 with 23.5 million women with children under 18 in the labor force.[1] Transportation and housing also consume a much larger portion of a family’s income than they did 50 years ago.[2]

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 below 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.

Figure 1. Cost of Living is Much Higher than the Poverty Level

Fig 1 pov guideline comp

In fact, family supporting income in the absence of public or employer provided health insurance ranges from 2.1 to 3.3 times the federal poverty guideline for the 10 family types discussed in this report. Most families, in other words, actually require more than twice the income identified as the poverty level in order to meet what most would consider basic household needs.[3]

[1] Hilda L. Solis and Keith Hall, Women in the Labor Force: A Databook, Bureau of Labor Statistics (December 2011).
[2] Sylvia A. Allegretto, Basic family budgets: Working families’ incomes often fail to meet living expenses around the US, Economic Policy Institute (August 30, 2005).
[3] 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. (That family type not shown here.)
2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and author of The Cost of Living in Iowa, 2016 Edition.
Peter Fisher is a nationally recognized expert on tax and economic development policy. He holds a Ph.D. in Economics from the University of Wisconsin-Madison, and he is professor emeritus in the School of Urban and Regional Planning at the University of Iowa.

 

 

ALEC Lauds Tax Cutting States

Once again ALEC is pushing its discredited notion that tax cuts are a potent tool to promote state economic growth, defying the preponderance of serious research.

Once again the American Legislative Exchange Council, or ALEC, is pushing its discredited notion that tax cuts are a potent tool to promote state economic growth. While the preponderance of serious research indicates that cuts to a state’s income tax or its business taxes have little positive effect on a state’s economy, and may well prove harmful to the long term prospects for growth and for increased prosperity, ALEC continues to push its anti-tax anti-government agenda. The latest effort is its State Tax Cut Roundup for the 2015 legislative session.

ALEC lays out in this report its principles of good tax policy, based for the most part on standard economic principles of taxation (transparency, simplicity, neutrality, fairness, reliability, and revenue adequacy), plus the need for balance between state and local governments, and its favorite: pro-growth policies, or economic competitiveness. As in other ALEC reports on tax policy, however, the discussion here is exclusively on ALEC’s notion of pro-growth tax policy — tax cuts of pretty much any variety. It is, after all, the Tax Cut Roundup, but there are no corresponding ALEC reports called the “State Tax Fairness Roundup” or the “State Tax Revenue Adequacy Roundup.”

The recent experience of Kansas should be caution enough against tax cutting as economic policy. For advocates of income tax cutting, Kansas was to be the poster child. Governor Sam Brownback signed legislation in 2012 slashing income taxes and cutting the state budget by over 13 percent. The tax cuts had been pushed by Stephen Moore and by Arthur Laffer, author of ALEC’s Rich States, Poor States, who argued they would provide an “immediate and lasting boost” to the economy. But instead of boosting the economy, Kansas GDP actually declined by 1.1 percent in 2013, the first year of the tax cuts, while nationally GDP grew at 1.3 percent. In 2014, Kansas growth once again lagged the nation, 1.4 percent versus 2.2 percent. Estimates for 2015 show the trend continuing, with state GDP growth expected to be just half of the national rate. Read more.

That the underlying ALEC agenda is to shift taxes from upper to lower income groups becomes clear when one contrasts its statement of tax fairness in the State Tax Cut Roundup with the tax policies ALEC actually favors. The principle stated by ALEC is: “The government should not use the tax system to pick winners and losers in society, or unfairly shift the tax burden onto one class of citizens. The tax system should not be used to punish success or to ‘soak the rich,’ engage in discriminatory or multiple taxation, nor should it be used to bestow special favors on any particular group of taxpayers.”

So how do ALEC’s policy prescriptions stack up against the concept of fairness? A state tax system that did not alter the distribution of income, as ALEC supposedly favors, would be a proportional system: It would take the same percentage of income from every income group. However, most state tax systems are regressive: They take a larger percentage of income from lower income groups, because they are dominated by sales, excise and property taxes, and an income tax generally of only modest progressivity.

Yet ALEC invariably applauds income tax cuts, which would make a state’s system more regressive, moving the state further from the goal of neutrality with respect to income distribution. Apparently shifting taxes from upper to lower income groups is the fair thing to do according to ALEC.

 

2010-PFw5464Posted by Peter Fisher, Research Director of the Iowa Policy Project
pfisher@iowapolicyproject.org
Peter Fisher is professor emeritus of Urban and Regional Planning at the University of Iowa. A nationally recognized expert on economic development issues and tax policy, he authored two “Grading Places” books that examined business climate rankings by various organizations, including ALEC. From this research, Fisher and the Iowa Policy Project have developed a new website, Grading the States, at gradingstates.org, to permit timely tracking of such studies and offer context to those wishing to review them. The post above is a version of a recent post by Fisher on the Grading the States website.