Full-time work not enough

Iowans are faced with limited economic opportunity despite their hard work.

Many Iowa families are unable to afford groceries, car maintenance or prescription refills, even though there is at least one full-time worker in the household. This presents a double bind, where Iowans are faced with limited economic opportunity despite their hard work.

The Iowa Policy Project’s 2019 Cost of Living report delves into these issues, finding work does not provide 1 in 5 Iowa working households enough to meet basic needs.

IPP constructs basic needs budgets that reflect a frugal standard of living — including food, health care, child care, household expenses, and transportation, then uses Census data to calculate the number of working households that make less than a wage that meets these basic requirements. These budgets leave no room for Netflix, student loan debt, vacations or eating at restaurants.

A majority of single-parent working households are unable to meet basic needs in Iowa. Our analysis shows that a wage of at nearly $20 per hour is needed just to afford basic expenses for single-parent families. This is consistent with research showing higher poverty rates among single-parent households, due to single incomes, child care expenses, generally lower educational attainment and low wages.

Evidence-based policymaking can address the reality that many working Iowans do not make enough to afford basic expenses. Policies that increase the minimum wage and adjust it to the cost of living, provide paid family leave, and boost Child Care Assistance will serve to ensure Iowans are able to just get by and hopefully get ahead.

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

Illusory and elusive economic strength

The hard work of Iowans ought to be celebrated through public policy that raises wages to meet worker productivity and the cost of living, protects workers on the job, and ensures dignified retirement.

This Labor Day we celebrate the successes of the labor movement and workers across Iowa. In that spirit, let’s look at how our economy is doing a decade after the Great Recession. Why doesn’t this feel like an economic recovery? And, isn’t it a bit late to call this a recovery?

Wages

In terms of wage growth, only high-wage earners (making $41.53 hourly) have seen meaningful wage growth over the past 10 years. We see disparities in Midwest median wages by gender and race: Women make $4 less per hour than male peers, and Latino and African American workers make $5 less per hour than their white peers. As we will demonstrate in an upcoming report, these disparities are driven by structural factors like discrimination before and after hiring and the loss of unionized manufacturing jobs.

 

Jobs

Job growth in Iowa has been slow this year compared to monthly averages from 2011 to 2014. A low unemployment rate shrouds the reality that many Iowans have low-paying jobs without benefits, with some cobbling together multiple part-time jobs. We are almost 40,000 jobs short (graph below) of what is needed for a full recovery from the last recession when considering population growth.

Family Security

Many working Iowa households are unable to meet basic needs despite having one or more full-time worker in the house. For example, IPP’s Cost of Living in Iowa analysis shows 6 in 10 single-parent working households are unable to make ends meet on their earnings alone. When companies aren’t paying enough, these households need public assistance (work supports) for food, housing and other necessary items.

Taxes

Iowa’s tax system is upside down with low-income Iowans paying a larger share of their income in state and local taxes than the richest Iowans. Large corporations can reduce their state corporate income tax to zero and even receive a refund through Iowa’s Research Activities Credit. That results in so-called “refunds” — checks to companies that had more tax credits than they needed to pay their taxes — totaling $42 million in 2018 and $44 million in 2017. Those “refunds” to companies not paying Iowa corporate income taxes cost about the same as a 1 percent increase in State Supplemental Aid to public schools.

Public Investments

Iowa state and local spending as a share of personal income has remained virtually unchanged over the past 12 years, contrary to standard political rhetoric at the Capitol. State K-12 funding has not kept up with costs of educating children. Public spending on private schools continues to rise. The Iowa private scholarship subsidy cap doubled in nine years.

The hard work of Iowans ought to be celebrated through public policy that raises wages along with worker productivity. This would allow wages to keep up with the cost of living. Better public policy would protect workers on the job, and ensure a dignified retirement.

Natalie Veldhouse is a research associate for the nonpartisan Iowa Policy Project.

nveldhouse@iowapolicyproject.org

Transparency: Corporations see; we don’t

The transparency on tax breaks that we get in Iowa is merely a tease for the taxpayer, and for the folks who lobby the Legislature each year for their causes.

It’s not enough to really let Iowans compare the choices being made on the spending of public dollars.

Advocates for public-focused priorities push lawmakers to apply an adequate share of the state budget to real responsibilities: to educate children and young adults, care for those without the means to do so on their own, and to keep their natural environment clean and their streets safe.

They have to make a case, that a public investment is not only needed, but a responsible use of funds that benefits the greater good in Iowa.

Some in the lobby can afford to advocate differently. In the “We Got Ours” huddles of big-business advocates in the lobby, the high stakes business of protecting their special breaks, and expanding them, is often only evident in the results.

A Cedar Rapids Gazette story shows we can expect more of this for an expensive and unaccountable program long on the books, the Research Activities Credit, or RAC. The RAC, unlike most tax credits, often does not affect taxes at all, but is a straight and automatic subsidy provided to huge companies that pay little — and often nothing — in Iowa corporate income taxes. (Remember that next time you hear their  complaints about Iowa’s corporate tax rates.)

Much of the story offered weak defenses of this program by the state’s economic development director, Debi Durham, and a spokesperson for the biggest recipient of these subsidies. Neither of those two people offered a shred of evidence of a public return on the $60-plus million annual cost.

You see, we know the cost, because there is an annual report that lawmakers required for this program. (The lobby fought that requirement hard when it passed in 2009.) But what the report cannot show is how much of the subsidized research would have happened anyway.

RAC table ... large claims
The Research Activities Credit was set up to help small, entrepreneurial businesses get going. Instead, as official state reports have shown, very large companies with RAC claims above $500,000 account for between 80 and 90 percent of the cost every year.

In a deliberative budget process, everything is on the table — funds available, a clear and understandable process to apportion them, and the public benefit evident. But when $300 million in business credits are on autopilot, a large chunk of those funds is taken off the table before the rest of us even get to sit down.

Peter Fisher, IPP’s research director, notes in The Gazette story that the system gives all the advantages to the corporations.

“The corporations hold all the cards, which is why I think states and localities routinely spend way more than they need to,” Fisher told The Gazette. “It’s like playing poker where the other players know your hand but you don’t know theirs.”

To learn more about the RAC, see this Iowa Fiscal Partnership piece.

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Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership.

mikeowen@iowapoicyproject.org

Common good vs. common blame

When leaders defy a “common good” standard in decisions, the ultimate price becomes a “common blame,” because government actions represent us all, even if they do not serve us all.

The Chris Godfrey case is only the latest example of a state leadership that — with no meaningful check on its authority — will do whatever it wants regardless of the consequences. They can, so they will.

And, for now, a jury has given the taxpayers of Iowa the consequences: a $1.5 million judgment against the state because of then-Governor Terry Branstad’s discrimination against a gay state official. Godfrey was state workers’ compensation commissioner when Branstad pressured him to resign, then cut his pay when Godfrey refused.

Branstad maintains the decision had nothing to do with Godfrey being gay. A jury disagreed. Either way, the totality of the case is disturbing.

When our state leaders defy a “common good” standard in making decisions, the ultimate pushback or price becomes a “common blame,” because the government actions represent us all, even if they do not serve us all.

We already see it in the issues surrounding Iowa’s poor water quality and the refusal of Iowa’s leaders to use public policy effectively to correct it. The voluntary Nutrient Reduction Strategy is not a strategy at all, but rather our imaginary friend who assures us we’ll do the right thing. Or our farmers will. Someday. But no one will make either us, or farmers, do the right thing unless already inclined to do so.

We see it when exorbitant tax breaks or subsidies go to corporations without a discernible return to the public, while services that benefit not only the corporations but all Iowans — such as a strong PK-12 and post-secondary education system — are held back or even cut.

And we see it here, in the Godfrey case. As the Cedar Rapids Gazette’s Todd Dorman pointed out in a column today:

The jury found Branstad was in the wrong. Now, of course, if the verdict stands, it will be you and I who likely pay the freight. Maybe those captains of industry Branstad tried so hard to please by bullying Godfrey could pass the hat.
And of course those “captains of industry” would have to pass the hat if they are to contribute, because we don’t tax them enough. We keep giving away subsidies and tax breaks like candy.

But this is about more than taxes. As our senior research consultant, Colin Gordon, noted in a blog yesterday, Branstad’s own defense — effectively that he did not discriminate against Godfrey but wanted him out because of what he had heard from business owners — is a problem in itself. It is something that Iowa’s leaders need to recognize as a problem and if they cannot, the voters need to. The state is not here as a service center for corporations, but to serve all Iowans. When individual Iowans are injured on the job, they need someone enforcing the law, as Godfrey was doing.

By his own admission, Governor Branstad was taking his cues from his business cronies. And if you read the transcript of his deposition in the case under questioning by attorney Roxanne Conlin, you can see he didn’t investigate beyond the anecdotal whining he was hearing from selected business people.

And Branstad won’t be held accountable for it. The people of Iowa will be, in our common blame.

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

Improve water quality funding equitably

Expand existing state programs to improve waters and overall balance in Iowa tax system.

Iowa has an opportunity to advance equity while improving water quality. The constitutional amendment voters overwhelmingly passed in 2010 gave us the option to fund water quality programs with the sales tax, but it’s only a starting place, and we need to explore more equitable funding solutions.

The sales-tax option needs to be paired with options that enhance equity in the way we fund all public services. A comprehensive approach adds other sources — even as we recognize that Iowa policy makers have refused the voters’ clearly stated desire for action.

A new IPP report offers policy options to improve water quality in an equitable way. Iowa voters, in a 2010 statewide referendum, showed their willingness to raise the sales tax in order to fund water quality efforts. The trust fund they authorized remains empty today, nine years later.

As we noted in an April 2019 report, Iowa water quality funding is inadequate.[1] Some will claim new water-quality funding passed in 2018, but it was at best window dressing. New programs had no new revenue source and added little to the mainly federal nutrient reduction funding that exists now.

The sales-tax option remains on the table and is promoted by serious advocates for action. The challenge is to find a way to offset the impact of a sales-tax increase on lower- and moderate-income households. Already, those lower-income families pay the most of any income group, as a percentage of their income, on sales tax. This drives the overall regressive nature of Iowa’s state and local tax system.[2] Analysis from the Institute on Taxation and Economic Policy (ITEP) shows why a tax on purchases hits lower income families harder (see graph). Lower-income families spend most of what they earn, and they spend a large share of it on goods and services that are subject to the state sales tax. This is less the case the higher you go on the income scale.

Basic RGB

 

How to fix it? We see two immediate options using existing programs: Boost the Earned Income Tax Credit (EITC) to help working families, and expand Disabled and Senior Citizen Property Tax Credit and Rent Reimbursement Program.

How to pay for it? Use at least part of the revenue from a 1-cent sales tax increase. The constitutional amendment directs three-eights of the first cent to the clean water and recreation trust fund. The key is what happens with the other five-eighths.

According to ITEP data, increasing the state EITC to 20.5 percent of the federal credit (from the current 15 percent) would fully offset that average $124 yearly sales-tax increase for a working family eligible for the EITC. The Rent Reimbursement program can contribute for other low-income families. Those two steps — EITC and Rent Reimbursement — would cost an estimated $30 million,[3] only a small share of the “extra” sales-tax revenue from a 1-cent increase

Taxing the polluter is another policy option for addressing a broader equity concern. Fertilizer used in the agricultural sector is the source of the contamination, yet it is exempt from the general Iowa sales tax. Removing the fertilizer exemption would bring a substantial source of water quality funding: about $110 million annually.[4]

In an already tax system favoring the highest earners, raising the sales tax is not a preferred option. But it can be improved and turned into an opportunity to both improve services and the overall balance in Iowa’s tax system. Those interested in both equity and clean water could embrace that opportunity.

[1] David Osterberg and Natalie Veldhouse, “Lip Service: Iowa’s Inadequate Commitment to Clean Water.” April 2019. Iowa Policy Project. http://iowapolicyproject.org/2019docs/190424-WQfunding.pdf

[2] Institute on Taxation and Economic Policy, “Iowa: Who Pays? 6th Edition.” October 2018. https://itep.org/whopays/iowa/

[3] EITC: $124 for each of the 209,000 taxpayers who receive this credit equals $25,916,000. Renters’ credit: $124 for each of the 32,000 who receive the credit equals $3,968,000. Total about $30 million for the two programs.

[4] $1,845,469,000 X 6 % = $ 110,728,140. The total in the 2017 Census of Agriculture was much smaller than the 2012 figure $2,587,059,000.

 

2018-NV-6w_3497(1)

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

Better target senior tax breaks

Why should a senior retired couple pay less income tax than a working couple with similar or even less income? That can be the situation in Iowa, and many other states.

Also see Iowa Fiscal Partnership news release

A new paper about state tax breaks for seniors shows one reason pre-2020 chatter about new tax breaks in Iowa is a bad idea.

Elizabeth McNichol of the Center on Budget and Policy Priorities (CBPP) notes in her report Wednesday that special income-tax breaks for seniors cost states 7 percent on average in 2013, a figure that will rise with growth in the population over 65.

As McNichol notes, “The senior tax breaks are poorly targeted because of their design: most states provide them regardless of the recipient’s income or savings.”

Put another way: Why should a senior retired couple pay less income tax than a working couple with similar or even less income? That can be the situation in Iowa, and — as McNichol notes — in many other states as well.

It is a point Peter Fisher and Charles Bruner have made in Iowa Fiscal Partnership (IFP) analysis over the years about Iowa’s special breaks for pension income, and as legislators phased out what had already been a limited tax on Social Security income.

Already, Iowa has freshly passed, costly and inequitable tax cuts scheduled to be phased in over the next few years, yet state legislators just last week were talking about bigger cuts in 2020. Given attempts to expand senior breaks in 2018, but not adopted in the final package, there is a danger that new income-tax cuts in 2020 could include the new senior breaks.

Among changes considered in 2018 was an expansion of Iowa’s already generous pension exclusion from $6,000 (single) and $12,000 (couple) to $10,000 and $20,000, respectively.

McNichol’s paper notes Iowa is one of 28 states that already completely exempts Social Security income from tax, and one of 26 that exempts at least some pension income.

Iowa, in short, is already quite generous to retirees. Also as McNichol notes, for some this might make sense — seniors at low incomes. But not all.

“A large share of these costly breaks go to higher-income seniors who need them the least. States should reduce this expense by better targeting relief to seniors with low incomes,” she wrote.

Bruner and Fisher noted this problem in their IFP paper last year:

Iowa has adopted a number of special provisions benefiting seniors. While the elderly and disabled property tax credit is available only for those with low income, the other tax preferences are not based on ability to pay:

•   All Social Security benefits are exempt from tax.

•   The first $6,000 in pension benefits per person ($12,000 per married couple) is exempt from tax.

•   Those age 65 or older receive an additional $20 personal credit.

•   While non-elderly taxpayers are exempt from tax on the first $9,000 of income, for those age 65 or older, the exemption rises to $24,000. For married couples, the threshold is $13,500 for the non-elderly, but $32,000 for seniors.

Iowa Fiscal Partnership analysis of tax policy and tax proposals is always grounded in fundamental principles of taxation, among them fairness: Similarly situated taxpayers should be treated similarly in tax policy.

What matters more to measure a taxpayer’s ability to pay is the amount of income, rather than its source. To tax income from wages at a higher rate than retirement income violates that principle.

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

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