Iowa jobs threatened by Congress’ inaction on Medicaid

A temporary increase in federal Medicaid payments created or saved 2,354 Iowa jobs in 2009, and will create or save 4,026 jobs in 2010.

But that job creation is threatened by the Senate’s failure to extend the increased in Federal Medical Assistance Percentage (FMAP) rates — the portion of Medicaid paid for by the federal government.

The American Recovery and Reinvestment Act of 2009 injected billions of dollars into Iowa’s economy, including $363 million to date in the increased FMAP rate. The Iowa Fiscal Partnership has illustrated the dramatic effects the Recovery Act has had on the state economy.

Just What the Doctor Ordered, An IFP analysis, described how the Recovery Act’s increased FMAP created and saved thousands of Iowa jobs:

Because Medicaid recipients save money on their health care bills, they are able to spend most of their incomes on meeting necessities through local payments for housing costs and through purchases from Iowa retail stores and service providers. In turn, these retailers and service providers are better able to keep their workers employed and have more income to spend purchasing from other businesses or residents in the state.

Without an extension of the increased FMAP, the state budget faces serious consequences, too. The Recovery Act’s increased FMAP rate is set to end at the close of this year — right in the middle of the state’s fiscal year.

As we have noted, in their Fiscal Year 2011 budget, Iowa lawmakers assumed that the increased FMAP would be extended through June 2011. Without an extension of the increased FMAP, there is a $120 million hole in the state budget. If Congress fails to extend the increased FMAP, Iowa’s lawmakers will be forced to cut spending in other critical state services to fill the Medicaid deficit or drastically cut Medicaid spending when the General Assembly reconvenes in January.

Iowa’s recovery from the recession has been slow, but it does appear to be ongoing. Failing to extend FMAP would undo much of the progress hat has been made, and hurt thousands of Iowa’s working families.

Posted by Andrew Cannon, Research Associate

EITC provisions in ARRA reward work, help economy

Our analysis of Census Bureau data show that more than 36,180 Iowa families could benefit from the EITC improvements made by ARRA in 2009.

Andrew Cannon, research associate
Andrew Cannon

By acting this summer to extend selected provisions of the American Recovery and Reinvestment Act (ARRA), Congress would preserve critical work supports for low- and moderate-income working families — and help the economy.

One of those provisions is the Earned Income Tax Credit (EITC), a bipartisan measure that keeps millions out of poverty, offsets payroll taxes and augments low wages, particularly for families with children.

The concept is simple: As low- and moderate-income adults work and increase their wages, they are eligible for a credit that rises, plateaus and then phases out as they reach closer to the range of middle-income earners. The credit is fully refundable, meaning that a family receives a check for the difference if their credit is larger than their income-tax liability.

In 2003, the EITC helped 4.4 million Americans escape poverty, including 2.4 million children. More children in the United States are lifted out of policy by the EITC than by any other social program.

Besides deterring poverty, the EITC encourages low-wage workers to work, because as their earnings rise at low wages, their EITC also grows.

ARRA — the federal recovery act passed in 2009 — offered the latest improvement to the EITC. ARRA created a new credit tier for families with three or more children. Families with two children can receive a maximum EITC of $5,028, while families with three or more children can receive a maximum EITC of $5,657 in 2009. ARRA further improved the EITC by expanding the amount of qualifying earnings for married couples filing their taxes jointly. The EITC will, without further action by Congress, revert to the pre-ARRA eligibility rules in 2011.

Thousands of Iowans claim the EITC each year. In 2006, the last year for which data is available, 177,329 Iowans claimed the EITC. The ARRA improvements will allow Iowans with three or more children to claim a slightly larger credit on their 2009 and 2010 tax returns. Married Iowans filing their taxes jointly will have a larger window in which to qualify for the maximum credit of $5,657.

Our analysis of Census Bureau data show that more than 36,180 Iowa families could benefit from the EITC improvements made by ARRA in 2009.

Extending ARRA improvements to the EITC would make those families better able to meet their household budgets, and because they can be expected to spend the money, those families could contribute more to their local economy.

Posted by Andrew Cannon, Research Associate

High stakes for Iowa in Congress’ decisions

Understanding these benefits and the consequences of losing them needs to be paramount in congressional decisions about temporary, targeted extensions of ARRA funding.

Andrew Cannon, research associate
Andrew Cannon

Today’s New York Times discusses a problem faced by 30 states — including Iowa.

State budgets have been put together assuming the extension of an increased reimbursement for Medicaid, a smart move for economic recovery and a necessary move to help states deal with the increased demands in a severe economic recession.

For Iowa, the loss of those dollars would cause a Medicaid deficit of almost $120 million, according to the nonpartisan Legislative Services Agency.

When building the state’s 2011 fiscal year budget this spring, Iowa lawmakers assumed the federal government would extend a temporary increase in its share of Medicaid financing. The American Recovery and Reinvestment Act of 2009 (ARRA) temporarily increased the Federal Medical Assistance Percentages (FMAP), the portion of Medicaid financed by the federal government. That increase, however, expires in December 2010, right in the middle of Iowa’s fiscal year. Iowa and many other states expected this financing to continue as these needs have not subsided.

So far, however, Congress has not acted. Without an extension, Iowa faces a shortfall that at some point will need to be addressed, with cuts in services that could come both in and outside the Medicaid program. Either way, a cut would be bad for the economy, which has benefited from the infusion of federal dollars. Pennsylvania Governor Edward Rendell, in fact, warns in the New York Times story today that in his state, the cuts “would  actually kill everything the stimulus has done.” His concern is warranted.

Besides shoring up state revenues, as Iowa Fiscal Partnership reports have shown, ARRA has brought significant economic benefits to Iowa to enhance the prospects of a faster recovery. For the Medicaid match alone, IFP reported in Just What the Doctor Ordered:

Every federal dollar of economic stimulus invested in Medicaid yields about $1.68 in total output for the state of Iowa. Out of that dollar, 76 cents is returned to Iowa workers in the form of wages and salaries and incomes of small business owners.

ARRA — by providing dollars for Medicaid, unemployment insurance and food assistance — has come through with important resources for vulnerable Iowa families at a time they are most needed. At the same time, it has boosted the economy by increasing or maintaining spending by Iowans on goods and services, keeping people employed and spending their money in the economy.

Understanding these benefits and the consequences of losing them needs to be paramount in congressional decisions moving forward on temporary, targeted extensions of ARRA funding.

Posted by Andrew Cannon, Research Associate

Governor signs significant boost for Iowa families

Lily French
Lily French

Monday marked the enactment of possibly the largest investment for working families resulting from this year’s legislative session.

Governor Culver signed into law an expansion of the Food Assistance program that will reach 26,212 more Iowans who are struggling to buy enough food, either because they are unemployed, underemployed or simply have too low of wages even while working full-time to meet their day-to-day living expenses.

Not only will this program change help to secure almost $18 million worth of food for Iowans, it will provide a needed boost to local economies throughout the state. In the end, this piece of legislation will generate $33 million in economic activity over the next year and for years to come.  Now, we just have to let people know that new supports are available to help them!

Posted by Lily French, Outreach Coordinator

Tax Day spin: Find refuge in the facts

It is quite possible there is no more heavily spun day on the calendar.

Mike Owen
Mike Owen

Today is, as we all know, “Tax Day,” the deadline for filing our federal individual income tax returns. It is quite possible there is no more heavily spun day on the calendar. You can’t even find refuge on the comics pages.

While the Tea Party folks and others have their spotlight today, take a few minutes to read this masterful year-old blog post from our friends at the Oklahoma Policy Institute: http://okpolicy.org/blog/taxes/classic-reruns-no-tax-day/

Beyond that perspective on the value of taxes in funding essential public services, other useful information also is worth considering today about who pays taxes. Citizens for Tax Justice, in a report this week about tax changes resulting from the recovery, or “stimulus,” legislation signed by President Obama last year, notes the following:

  • 99 percent of working families and individuals in Iowa benefited from at least one of the tax cuts signed into law by President Obama.
  • Working people in Iowa received $1,115, on average, from these breaks.
  • These tax breaks benefited working people at all income levels.

For the full report (3-page PDF) click here and for the Iowa-specific summary (4-page PDF) click here.

David Leonhardt of the New York Times and Ezra Klein of the Washington Post (whose blog links to Jon Stewart’s take of the situation on “The Daily Show”) illustrate that lower-income Americans pay taxes, even if others might not want to acknowledge it.

As Stewart suggests, actually getting the facts about who pays taxes — which also include federal payroll taxes and state and local taxes — might not fit the outrage being pushed at a given moment: “Knowing that doesn’t make you as mad, does it?”

Iowa Fiscal Partnership reports have shown state and local tax impacts are far greater as a proportion of income for low-income Iowans than for higher-income Iowans, while corporate-income-tax loopholes and other tax breaks are draining the state treasury with little accountability, and critical services are being cut.

All food for thought on this day.

Posted by Mike Owen, Assistant Director

Missing an opportunity for tax-credit reform?

Nothing is objectionable about proposed tax-credit reforms — but much more needs to be done.

Christine Ralston
Christine Ralston

Iowa is missing an opportunity to implement strong transparency measures and to recapture revenue that it has been allowing to slip away for years.

Legislation passed by the Senate and now before the House appears to make only small, cosmetic changes to a serious structural problem. Generous tax credits have been leaking revenue out of the state for many years. Considering the recent scandal in the film tax credit program and the fact that Iowa, like most other states, faces revenue shortfalls of historic proportions, the state very much needs meaningful reform.

The Governor’s Tax Credit Review Panel made promising recommendations, and the Governor supported those recommendations when he issued a call for action in his Condition of the State address. Yet, the legislative package falls far short of the panel’s recommendations. For example:

Table comparing tax-credit reform proposals

It is important to note that lowering a cap is not the same thing as “saving” money. When the sum of all business credit claims is not reaching that cap, then the state is only reducing its potential liability and not saving any actual dollars.

The proposal is also lacking in essential new transparency measures. No additional disclosures regarding tax credits and expenditures are proposed in the plan. Iowans should know who is getting their tax dollars.

And this bill is certainly not good news for the thousands of Iowans who are seeing important safety net programs and jobs disappear during this recession.

Does this bill do something? Yes. Does it do much? No. Nothing in this bill is objectionable when considering the principles of sound tax policy. That said, much more needs to be done to move Iowa forward and to solve Iowa’s budget problems using an approach that is truly balanced.

Posted by Christine Ralston, Research Associate

Stimulating Iowa’s economy with unemployment benefits

As these funds cycle through the economy, thousands of jobs are produced or saved, and economic activity benefits Iowans.

Andrew Cannon, research associate
Andrew Cannon

American Recovery and Reinvestment Act (ARRA) put millions of dollars into the hands of Iowans who needed money most —Iowa’s recently unemployed. It encouraged states to update their unemployment insurance eligibility (of which Iowa was the first), enabling part-time and low-wage workers to qualify for unemployment insurance (UI).

Unemployed Iowans benefited from ARRA in two key ways: they received an additional $25 per week and they had their eligibility for receiving UI extended significantly. Rather than having just 26 weeks of UI, ARRA extended workers’ eligibility for UI by 47 weeks, to 73 weeks total.

As a result of these two measures, the Iowa economy will have an additional $314.8 million ($82.6 million for the additional $25 in weekly payments and $232.2 million for the extension of benefits) injected into its economy in 2009 and 2010.

As the only source of income for many unemployed workers, UI benefits are spent quickly and locally. Apart from helping the unemployed meet basic needs, UI benefits also help the local economy, maintaining or even increasing the demand for goods and services. Providers of these goods and services end up using these funds to pay their workers’ wages, who in turn, spend their wages on their basic needs. The multiplier effect of the increase and extension of UI benefits, as well as other workforce- related provisions of ARRA produced almost $501.7 million in direct and indirect effects in 2009, and will produce over $314.6 million this year.

ARRA-UI jobs graph 2009-10
Source: David Swenson

As this money cycles through the economy, we estimate over 3,700 Iowa jobs were produced or saved last year, and over 2,200 this year, solely as a result of the UI measures of ARRA.

Clearly, UI benefits are no match for a steady job with a decent wage and benefits. But for the thousands of Iowans who have found themselves without such a job, ARRA has been a lifeline. Moreover, it has helped keep many other Iowans who, but for the stimulus, might have found themselves unemployed, too.

Posted by Andrew Cannon, Research Associate