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

Jobs in Iowa: Partly Sunny with Scattered Showers

The labor force grew by 2,900 workers last month. This could be a sign of increased confidence in the market, as more Iowans decide looking for work is a worthwhile endeavor.

Christine Ralston

I cannot wait for the day when The Iowa Policy Project’s monthly JobWatch headline reads unequivocally, “Nonfarm Jobs Increase for 12th Consecutive Month and Unemployment Remains Steady at 3 Percent.”

Alas, the forecast is still a bit mixed: Iowa is certainly making headway in nonfarm jobs numbers, but we continue to see high unemployment rates.

The good news is pretty good. The number of nonfarm jobs in Iowa increased by 7,300 to 1,474,200 in March. This increase is heartening, though we do have a ways to go. Iowa is still down 16,200 jobs compared to last March.

Then there is that other number: the unemployment rate. The unemployment rate edged upward to 6.8 percent, from 6.7 percent in February and well above the 5.5 percent we saw this time last year.  The last time the unemployment rate reached 6.8 percent was July 1986, when the state was recovering from the chronically high unemployment of the early 1980s.

As is usually the case, Iowans are fortunate to be better off in terms of unemployment than the rest of the nation. The national unemployment rate remained steady in March at 9.7 percent.

But there are other clues in these numbers. The labor force grew by 2,900 workers last month and is up by 12,700 over March 2009. This could be a sign of increased confidence in the market, as more Iowans decide looking for work is a worthwhile endeavor.

March marks the third consecutive one-month improvement in nonfarm jobs, and the sixth in the last eight months. Iowa has posted an average gain of 5,100 jobs per month for the last 3 months. We are currently down 54,000 jobs from last decade’s high point (1,528,2000 in November 2007). Continuing this trend would be great… and would start to push us closer to that headline I can’t wait to type.

Posted by Christine Ralston

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

Despite Job Boost in January, Lower Numbers Than Thought

The new numbers present some reason for hope for job-seekers — but also show Iowa jobs are falling short of demand. An extension of unemployment benefits in this climate would be important, to help struggling families and the economy.

Christine Ralston
Christine Ralston

Iowa nonfarm jobs grew in January, but revised December numbers are far below previous estimates. Nonfarm, or payroll, jobs rose by 4,600 in January to 1,463,400. Though a clear gain, it shows the number of jobs for December was vastly overstated. The January number is 5,400 jobs below the level that had been previously estimated for December.

The unemployment rate showed a slight increase following annual government revisions of employment data, to 6.6 percent from 6.5 percent in December. That December number had previously been reported at 6.6 percent.

The new numbers are the best numbers available, and they do present some reason for hope in what has been a very difficult period for job-seekers.

Over the year, from January to January, we see pretty similar trends to what we’d seen earlier. Iowa lost nearly 40,000 jobs in one year (38,200), and over 40 percent of the loss (16,600) came in manufacturing. These are jobs that traditionally pay better than most and offer health benefits.

It’s always best not to get too swept up in the monthly numbers because they are subject to revision. It’s better to take a step back and view them over time.

What the numbers do illustrate, however, is that Iowa jobs are falling short of demand for work. This yet again emphasizes the need for an extension of unemployment insurance benefits by Congress — both to help families make ends meet when jobs aren’t available and to bolster the economy. Unemployment benefits are spent in local economies, and that helps to create jobs.

Posted by Christine Ralston, Research Associate

Action on climate change must consider all citizens

About 1 in 5 Iowans would be eligible for direct consumer relief on energy costs in the House climate bill.

Climate change affects everyone, everywhere.

David Osterberg
David Osterberg

Everyone will have to make changes, but for some it will be more difficult than others. Public policy must recognize this disparity.

Recent negotiations in Copenhagen dealt with climate-change policy ideas that hit poor countries differently from rich.

Unless rich countries provide funds to help implement new energy-efficiency and renewable-energy technology, developing countries will not be able to afford a transition to smarter, cleaner, but initially more expensive methods of producing energy.

Within the United States, we’re going to see higher energy prices by making coal and other fossil fuels account for their environmental and health effects, at least initially. It is not avoidable, and without careful design these policies will affect people differently at different income levels.

While a climate-change bill has not passed the full Congress yet, President Obama last year signed economic recovery legislation that takes some steps, helping low-income people who find it difficult to insulate their homes and upgrade furnaces and other appliances to use less energy.

In that so-called “stimulus” package, the American Recovery and Reinvestment Act (ARRA), Community Action Agencies in Iowa and around the nation received a large boost in funds to ensure that homes of the poorest families use much less energy.

Before, that program spent about $15 million per year on weatherization in Iowa. ARRA added $80 million over three years. The work is currently under way, helping people to weatherize their homes and helping the Iowa economy at the same time.

Climate legislation in Congress can and should do more.

The climate-change legislation passed last June by the U.S. House recognized the difference. Where, higher-income Americans can offset the higher costs of a gallon of gas or kilowatt hour of electricity by installing insulation or combining car trips, such efficiency moves are out of the reach of many Americans at low incomes.

About 1 in 5 Iowans — approximately 579,000 at low incomes — would be eligible for direct consumer relief in the House bill. These payments would compensate for higher expenses for energy and energy-intensive goods and services for those households.

A Senate version of the bill does less directly for low-income citizens, but that bill, passed out of the Environment and Public Works Committee, also makes improvements. It’s something that needs further consideration.

At home and abroad, climate-change policy must recognize the disparity in economic ability to make the necessary changes to save our environment, our resources and our planet.

Posted by David Osterberg, Executive Director