IPP Open House packs ’em in

Christine Ralston
Christine Ralston

Wow, what an event. Friday afternoon, the Iowa Policy Project hosted an open house and FRIENDraiser at our new office in Old Brick.

We packed the office with friends and supporters. Guests had the opportunity to meet and talk with IPP staff, old IPP staff greeted longtime friends and new staffers were able to meet many of IPP’s friends and supporters.

The event was an opportunity for IPP to show off our new, spacious office. The organization has increased from five to nine staff members in just two years, so our old space was getting a bit cozy.

Our new space has several private offices, a research room and a separate conference room which was dedicated in honor of IPP co-founder Mark Smith.

Mark helped found IPP in 2001 in collaboration with IPP’s Executive Director, David Osterberg. Mark is perhaps best known as former president of the Iowa Federation of Labor, AFL-CIO. For 34 years, Mark worked tirelessly in education, organizing and advocacy for Iowa’s working families.

A short presentation included remarks by David about IPP history and Mark’s contribution to the organization as well as Mark’s remarks about the founding, work and expansion of the Iowa Policy Project.

David Osterberg speaks at IPP's Open House
David Osterberg speaks at IPP's Open House

The event was open to the public. Attendees included past and present members of the IPP board, friends and supporters of IPP’s work and several of our nearby elected officials: Congressman Dave Loebsack, State Senator Joe Bolkcom of Iowa City, State Representative Nate Willems of Mount Vernon, and Johnson County Supervisor Rod Sullivan.

Many, many thanks to those of you who took the time to come and speak with us, see our new offices and make donations in support of our work. We truly appreciate it.

Posted by Christine Ralston, Research Associate

Federal deductibility: the reality

The word of the month in Iowa tax discussions is “federal deductibility.” It means you can deduct your federal income tax from your state income at filing time. Only a handful of states let their residents do it.

Iowa is one of only three states that permit taxpayers to deduct the full amount of federal income taxes paid.

Make no mistake: Federal deductibility is a benefit targeted for Iowa’s highest-income families. Some others benefit, but mostly, it is those at higher incomes.

The last, best analysis of this we have shows that the wealthiest 20 percent of Iowa taxpayers receive 80 percent of the tax benefit from federal deductibility (2002 figures). For the other 80 percent of Iowans, the tax cut amounted less than half of 1 percent of their income. Using those 2002 numbers, by the way, the dollar amount of the average tax cut for the top 1 percent of taxpayers was about $13,900 — more than the income of people in the bottom 20 percent.

To understand why wealthier people get the greatest benefits under federal deductibility, consider this: You have to pay federal income tax to get the Iowa deduction. Many Iowans at moderate and low incomes simply do not make enough money to pay income tax to the federal government — but Iowa law still makes them pay income tax. some provisions in the tax-reform bill in the Iowa Legislature make that situation better for low-income families.

Remember these perspectives when someone defends “federal deductibility” as something to help low- or middle-income working families. For most of them, it’s just not so.

Focus on Facts: Reform Lowers Rates

There’s a lot of confusion being promoted by some about the tax-reform plan before the Iowa Legislature.

There are three main points to it:

  • • It lowers Iowa’s tax rates, taking the top rate down by 2 percentage points.
  • • To enable the lower rates, it does away with federal deductibility.
  • • There are additional boosts in tax credits targeted to low- and moderate-income working families.

Iowa Fiscal Partnership analysts have — like others — been going through the figures provided by the nonpartisan Legislative Services Agency (LSA) about the effects of the total package. Those effects have been portrayed many ways. IFP considers the following to be the most important points to be understood from that LSA analysis:

  • • For both 2009 and 2010, 73 percent of households with incomes below $50,000 a year would see their taxes either stay the same or decrease under the reform proposal.
  • • During 2009, households earning below $50,000 would, on average, see a tax change of no more than $70 in either direction, as a cut or an increase.
  • • Overall, Iowans earning below $125,000 would, on average, see a tax cut or no change.

That last number is an important one. We’ve been hearing a lot in recent days about effects on small business. Many of the claims don’t hold water.

As our researchers have found, more than 70 percent of small business owners in the U.S. earn less than $125,000. Because many small-business owners report and pay their state income tax on individual returns, this plan obviously helps them, too.

This plan makes a small but positive change in the tax code.

Posted by David Osterberg, Executive Director

Common sense, stability in tax reform

Statement of Beth Pearson, Iowa Policy Project
Public Hearing on Income-Tax Reform • Iowa House Chamber • March 31, 2009

Beth Pearson
Beth Pearson

Thank you, and good evening. In my capacity as a researcher at the Iowa Policy Project, I evaluate potential budget and tax policies according to whether they make our overall fiscal system more sound and help support our shared public priorities.

In general, good changes to our tax system are ones that make it fairer, more competitive, more stable and secure, and easier to understand. We want a system that provides sufficient revenue to fund essential public services, but we want it to generate that revenue in a way that respects a taxpayer’s ability to pay a tax and doesn’t distort an individual’s private economic decisions.

The income tax reform proposal now before you goes a long way in moving Iowa’s overall tax system — comprised of income, sales, and property taxes — in the direction of these basic principles. Let me talk about just two of those principles: competitiveness and fairness.

First, competitiveness. When profits dip for a small business owner during a recession, their income tax bill goes down automatically. Even those small business owners lucky enough to have steady profits in these tough economic times will likely see a tax decrease as a result of this proposal. The Tax Policy Center, a project of the Urban Institute and the Brookings Institution, found that, nationwide, seventy percent of taxpayers with small business income earned less than $100,000 in 2009. Assuming the same distribution holds true for Iowa, that would mean that more than 70 percent of taxpayers with small business income in Iowa would see an average tax decrease under this proposal. I think that makes it a more competitive system.

Second, fairness. There’s no question that there are particular types of households who benefit the most under this package: low-income working families with children. In addition to seeing lower income tax rates, these families also stand to benefit from expansions in the Earned Income Tax Credit, which helps make work pay by targeting tax assistance to income earners with children, as well as expansions in the child and dependent care credit. So, yes, this package does offer a disproportionate share of its benefits to low-income families who are sending their kids to child care every day so that they can hold down a job in a tough economy. I think that makes it a fairer system.

Most tax changes made during the past 20 years in Iowa haven’t held up when scrutinized according to good budget and tax principles. But this proposal offers us an opportunity to take a step in the direction of common sense and fiscal stability, and I urge the Legislature to pass and the governor to sign this bill.

See the Iowa Fiscal Partnership analysis (3-page PDF) of the legislation, Iowa Income Tax Reform: An Emphasis Upon Sound Principles.

Iowa Uninsured: New — Startling — Numbers

Families USA today released a new report that crunches more numbers about uninsurance in Iowa. The numbers are startling.

Mike Owen
Mike Owen

According to the nonpartisan organization, about 686,000 Iowans — about 1 in 4 under age 65 — were without health insurance at some point during 2007-2008. We typically see figures for uninsurance in Iowa just under 300,000, but those figures are from Census data designed to reflect people uninsured for an entire year.

This new study looks at that Census data and other sources to determine how many people were without insurance for a portion of two years — and Families USA director Ron Pollack emphasized, the study took care not to duplicate anyone in the count.

The study found:

  • •  More than 1 in 4 (about 27 percent) of non-elderly Iowans were without insurance for some part of 2007-08.
  • •  Of the 686,000 uninsured Iowans in that period, about 70 percent went without insurance for six months or longer.
  • •  Most of the uninsured — about 85 percent — are members of working families.

This is as much about the insecurity caused in the current economy as anything.

It was of concern enough before to know of almost 300,000 Iowans being without insurance, whether it’s over a full year or for one or two months.

A lot can happen in a time of uninsurance that jeopardizes a family’s financial security — not to mention the overarching concern of assuring that people have access to quality health care when they need it.

As the Families USA report shows, people can be working and still not have access to health care.

Our own research has shown:

  • •  Job trends keep showing that growing sectors (which are few right now) are sectors that are less likely to pay well and are less likely to offer health-insurance benefits.
  • •  Those trends also show that declining sectors are the ones where pay and benefits have been better.
  • •  The combination of these trends means that it’s more difficult to get insurance through employment.

We had seen these trends backed by Census information in the past, as well as the clear evidence of the value of public health insurance in keeping the situation from getting worse.

The Families USA report is an important addition to the factual discussion on which sound public policy decisions may be made regarding health care. In the research community, we welcome these findings.

Posted by Mike Owen, Assistant Director

Change Iowa’s child care landscape

Child care assistance — a smart investment for Iowa’s economy and a boost for working families.

Lily French
Lily French

In the economic crisis Iowa’s families are facing, child care assistance can help. However, Iowa’s current program does not help families enough. We have one of the highest rates of working parents in the country — and also one of the most restrictive assistance policies. We are ranked 47th in country because our income eligibility limits are so low. As a result, too few low-income families are receiving support that will help them keep working.

Our new study, Strengthening Child Care Assistance in Iowa, found:

  • • Resources used to provide child care assistance returns money to the state budget.
  • • With program improvements where Iowa has some current weaknesses, it could be self-supporting or actually generate revenue in the future.

Two major weaknesses that could be addressed:

  • • We currently reach too few working families who are struggling with child care costs (they are facing costs for child care with is higher than a year’s tuition at a regent university).
  • • The current quality of subsidized care is lower than care for children without subsidies. We would generate more money back to the state budget and potentially make money for the state by improving the quality of care that subsidized children receive.

Regarding the state’s fiscal situation:

  • • We did not make these program investments three years ago when the economy was better — we can’t count on it happening once things are better again, maybe three years from now.
  • • Our current fiscal situation demands that we keep Iowans working and make smart investments with state dollars. Child care assistance does both.
  • • Right now we have federal stimulus targeted for child care improvements and expansions. This is an opportunity for Iowa.

If Iowa policy makers seriously address the facts noted and challenges suggested by our report, they could change the landscape of child care in Iowa. This would be a big boost to working families who are struggling to get by.

Posted by Lily French, IPP Research Associate