Putting the U.S. Constitution up for grabs

In a republic we have rules — laws — framed by a Constitution that sets limits on how far they go, and on who can exercise them, while assuring that we can change them as needed, in an orderly process that protects the rights of all.

Imagine these rules were gone, that they all changed, that a minority could routinely stop the majority from moving forward, that individual liberties could vanish.

Imagine the squabbling members of Congress you see every night on television setting themselves up as modern-day George Washingtons, James Madisons and Ben Franklins, and flipping everything on its head. A bill calling for a U.S. Constitutional Convention — approved last year by the Iowa Senate State Government Committee and moving again this year — could do just that.

The bill, Senate Joint Resolution 8, or SJR8, would put the State of Iowa on record calling for a constitutional convention, which could easily become a free-wheeling assault on our constitution, following whatever process it chooses, with no review by any existing court or legislative body.

While the resolution asserts that such a convention would be limited, the scope of issues is so broad as to effectively erase limitations: “to impose fiscal restraints, and limit the power and jurisdiction of the federal government.” Even then, it is not clear that states have the authority to limit the scope of a convention at all. According to constitutional scholars, the delegates would likely be free to define any limits as broadly as they wish, or to ignore them.

Why now? In some states, such as Iowa, far-right organizations including the Convention of States project and the American Legislative Exchange Council (ALEC) now have enough supporters in key positions to push for such changes even though none of this has been the focus — perhaps not raised at all — in Iowa election campaigns.

Supreme Court Justices ranging from the liberal Earl Warren to the conservative Antonin Scalia have warned against the dangers of opening up the constitution to radical change. If 34 states pass such a resolution, Congress will call a constitutional convention. One group counts 28 states that have already signed on.[1] It is conceivable that the threshold could be reached.

The Constitution contains very little guidance on the procedures for, or scope of, such a convention. The only precedent we have to go on is the constitutional convention of 1787, at which the existing document, the Articles of Confederation, was scrapped and an entirely new constitution, our present one, was created. That convention even changed the rules for ratification.

The delegates to a constitutional convention could set a rule that all decisions would require approval only by a simple majority of the states, with each state given one vote. That would allow the 26 least populous states, which contain less than 18 percent of the U.S. population, to rewrite the constitution.

The Constitution provides no guidance as to whether such a procedure is permissible. And even if Congress were to establish rules for the convention, there is no mechanism to force the convention to follow those rules.

Constitutional scholars say that under a convention now, the entire U.S. Constitution is up for grabs. It could quickly become a contentious and chaotic free-for-all, with moneyed interests free to lobby and purchase support however they chose.

[1] Iowa is shown as already on the approval list because of a resolution passed in 1979, but groups are pushing for a new one for fear that the age of that resolution will disqualify it, and because the wording of the 1979 version is different from the current one.

 

Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City.

 

Rest/best/worst of the story

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Senator Joni Ernst is using Facebook to gin up support for the new tax bill. It is a one-sided picture, to say the least.

So, what does it really mean for Iowans that the tax bill is law?

  • Middle and low-income Iowans will see temporary ​tax cuts in the short term that are ​drastically smaller​​ than those high-income taxpayers will see — and these will be taken away or turned into tax increases by 2027 to help pay for permanent tax cuts for corporations.
  • Millions of people nationwide will lose health insurance coverage as elimination of the individual mandate drives up costs for all.
  • The wealthy will keep more millions of dollars that have never been taxed due to further exemptions in the estate tax.
  • The Child Tax Credit will be extended to affluent families who do not need assistance, while 86,000 children in working families in Iowa receive a token increase of $75 or less — both expansions to evaporate after 2025.
  • Businesses will get enormous, permanent tax breaks with no requirements to create jobs.

Some might recall a longtime radio commentator, Paul Harvey, and his “Rest of the Story” pieces. The points above are the “rest of the story” that you might not hear from backers of the latest tax giveaway in Congress. You might be OK with them and call them the “best of the story.”

Or, you might be concerned about the impact they will have on U.S. and Iowa families, on national debt and new challenges they bring to the safety net, and call them the “worst of the story.”

But they are the real story, and they should not be forgotten as the spin continues.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

Careful backpedaling on estate tax, Senator

Contrast Senator Grassley’s current statements with his 2005 thought that “it’s a little unseemly” to suggest repealing the estate tax “at a time when people are suffering.” The tax bill promises suffering.

One of the problems with backpedaling is if you don’t do it well, you trip. Somebody catch Senator Chuck Grassley.

As has been widely noted across social media — a good example is this post in Bleeding Heartland — The Des Moines Register quoted Iowa’s senior senator that estate tax repeal would reward “people that are investing, as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.

Ironically, while promoted as a pullout quote in the packaging of the story, the “booze or women or movies” comment came quite low in the piece. More substantive problems with the Senator’s rationale for opposing the estate tax were presented higher: specifically his continued insistence that this has something to do with the survival of family farms.

It. Does. Not.

10-30-17tax-factsheet-f1Senator Grassley has promoted this unsupportable justification for his position for many years. This New York Times piece from 2001 includes it.

And he renewed it again Monday in claiming his “booze or women or movies” comment was out of context, taking the opportunity to promote his spin again — and again getting wrong the facts behind his fundamental objection: the impact on farms.

There, he claimed in the story that he wants a tax code as fair for “family farmers who have to break up their operations to pay the IRS following the death of a loved one as it is for parents saving for their children’s college education or working families investing and saving for their retirement.”

While only a handful might actually have to pay any tax at all because of the generous exemptions in the estate tax — shielding $11 million per couple’s estate from any tax — no one in the many years the Senator has pretended this is an issue has been able to cite a single farm that had to break up because of the tax.

Contrast his current statements with the one he made in the wake of Hurricane Katrina in 2005, when there was a move afoot to slash the estate tax. And — as shown by the graphs below — even fewer estates in Iowa and the nation are affected by the estate tax now than at that time, when he said “it’s a little unseemly to be talking about doing away with or enhancing the estate tax at a time when people are suffering.”

The tax legislation in Congress will cause millions to suffer, directly through a loss of health insurance, some with actual tax increases even at middle incomes, and over time with a loss of critical services that help low- and moderate-income families just to get by.

Furthermore, any middle-income tax cuts expire in 2026 while high-income benefits and corporate breaks remain in effect. And then, even more will suffer.

Questions we have been asking for years remain relevant today, and each time pandering politicians take a whack at the estate tax:

  • Is it a greater priority to absolve those beneficiaries of the need to contribute to public services — and make everyone else in the United States borrow billions more from overseas to pay for it — or to establish reasonable rules once and for all to assure the very wealthiest in the nation pay taxes?
  • Do we pass on millions tax-free to the heirs of American aristocracy, or do we pass on billions or trillions of debt to America’s teen-agers?

We all shall inherit the public policy now in Congress. As long as the estate tax exists, it remains the last bastion assuring that at least a small share of otherwise untaxed wealth for the rich contributes to the common good, or at least toward paying the debt they leave us. Fear not for their survivors; they still will prosper handsomely.

2017-owen5464Mike Owen is executive director of the Iowa Policy Project, a nonpartisan public policy research organization in Iowa City. Contact: mikeowen@iowapolicyproject.org

Editor’s Note: This post was updated Dec. 6 with the graphs showing the decline in Iowa estates affected by the estate tax.

What happened to infrastructure plans?

Already, federal help to improve drinking water and wastewater systems has been on the decline. How much appetite will there be for necessary construction when taxes to pay for it are being cut?

At the beginning of this year there was talk of possible bipartisan legislation to repair America’s crumbling infrastructure.

Both candidates for president had promised a new emphasis on repairing the nation’s roads, rails, sewage treatment plants and airports. The number kicked around during the campaign was often $500 billion. After President Trump won, he pushed up the rhetoric and spoke of a $1 trillion plan.

If Congress passes the tax bill now being considered, there will be little room in the budget to pay for present services, as we have emphasized here at IPP. How can this nation also invest in the things that will certainly produce jobs and make the nation more competitive?

The chances for implementing an ambitious infrastructure spending plan seem remote, as Congress is on course to add $1.4 trillion or even more in deficit spending over the next 10 years.

Already, federal help to improve drinking water and wastewater systems has been on the decline. How much appetite will there be spend more on what most agree is necessary construction when taxes to pay for those expenditures decrease so drastically?

When there is no appetite for spending, state governments sometimes resort to tax credits. That seems unwieldy in this case and, in the next few weeks, tax credits will lose much of their value anyway. When taxes are lower, there is less to gain by giving credits.

The new tax cut will give a benefit just for being a corporation or for being wealthy. Why invest in something productive when you are given a reward simply for “being?”

David Osterberg co-founded the nonpartisan Iowa Policy Project and remains its lead environment and energy researcher. dosterberg@iowapolicyproject.org

Beware corporate tax con job

Those who want us to believe in the magic of trickle-down economics are trying the oldest tactic in the books: misdirection.

EDITOR’S NOTE: A version of this piece appeared in the Wednesday, Nov. 29, 2017, Cedar Rapids Gazette. Online version here.

Those pushing the tax bill now before Congress have a tough job. They have to convince ordinary taxpayers that they should embrace a bill that gives massive tax cuts to corporations and rich people, raises the national debt, results in millions losing health care, and sets the stage for huge cuts in programs, from Medicare to food assistance to education.

Their principal argument — that trickle-down economics is going to bestow jobs and wages on the middle class — is a con job.

Why do U.S. corporations need a tax cut when they are already paying taxes at a lower overall effective rate than in other advanced economies? They don’t.

You have probably heard just the opposite: that our rates are the highest in the world, a skewed view that ignores only the nominal tax rate is higher than most other countries. In fact, a myriad of deductions and loopholes brings the actual rate corporations pay way down, to below average.[1]

The huge deficits created by this tax bill — $1.5 trillion over 10 years — would push interest rates up and would choke off investment, counteracting any tendency of the corporate tax cuts to increase investment. Furthermore, an examination of developed economies across the globe shows that corporate tax cuts over the past 15 years have not produced growth in capital investment. [2]

Nor is a cut in corporate tax rates going to lead to wage increases. U.S. corporate tax rates were slashed in the late 1980s, and in the years since we have seen the historic link between productivity and wages broken. In other words, the last corporate tax cut ushered in a period of stagnant wages, even though productivity continued to rise.

Think of it this way: Why would we expect tax cuts now would lead to corporations sharing productivity growth with workers through higher wages? It hasn’t been happening for the past 30 years.

It gets worse. The bill is supposed to be only $1.5 trillion because there are other tax increases that hold down the total. However one of those offsets won’t work as planned. A minimum tax on overseas profits, which sounds like a good idea, will actually provide an incentive for multinational companies to move American jobs overseas in order to escape the new tax.

Those who want us to believe in the magic of trickle-down economics are trying the oldest tactic in the books: misdirection. Focus on this shiny bauble — a small cut in your taxes in the short run — and this pie-in-the sky promise of jobs and higher wages; pay no attention to the billions of dollars going to corporations and the rich, and the inevitable cuts in programs, from health care to education to Medicare.

Peter Fisher is research director of the nonpartisan Iowa Policy Project in Iowa City. pfisher@iowapolicyproject.org

 

[1] U.S. corporation income taxes amount to 2.2 percent of GDP, while other advanced economies (the remaining countries in the Organization for Economic Cooperation and Development) collect 2.9 percent of GDP in corporate taxes. See “Common Tax ‘Reform’ Questions, Answered.” Josh Bivens and Hunter Blair, Economic Policy Institute, October 3, 2017.

[2] Josh Bivens, “International Evidence Shows that Low Corporate Tax Rates are not Strongly Associated with Stronger Investment.” Working Economics Blog, Economic Policy Institute, October 26, 2017.

Senate bill: Short of rhetoric

Despite a proposed improvement in the Child Tax Credit, the Senate tax bill doesn’t live up to proponents’ rhetoric to support families with children.

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Despite Child Tax Credit change, Senate Tax Bill Doesn’t Live Up to Rhetoric in Supporting Families with Children

One of the few provisions in the proposed Senate tax bill that has bipartisan support is increasing the Child Tax Credit (CTC), which has been designed to better reflect the costs of raising children. It has been cited as a major benefit to working and middle-class families with children.

Like other provisions, however, this change is done in ways that provide almost no help to working low- and moderate-income families, while providing huge breaks for very wealthy ones. For middle-income families, the gains from a higher child tax credit are mostly offset by losses in personal exemptions, and some middle-class families would actually pay more under the proposals than under current law.

The Senate and House versions both provide information needed to calculate the taxes different tax filers would pay on their 2018 income (the year the changes go into effect) and to then compare these with the taxes they would pay under current law.

In the Senate version, the partially refundable portion of the CTC is unchanged, except that it would be indexed for inflation going forward, increasing to $1,100 in 2018. The nonrefundable credit is increased by $1,000 per child, making a maximum credit per child of $2,000 (the House version provides only an additional $600 credit, in addition to also indexing the partially refundable portion to $1,100). Both bills extend eligibility for higher income families (from a current phaseout beginning for married joint filers at $110,000 of adjusted gross income to $500,000 in the Senate version and an even higher level in the House version).

Performing the comparison of what tax filers in 2018 would experience from the CTC increase, a single mother with two children working full time and making a little above the minimum wage, $16,000 per year, gets no benefit under the House version and only $75 under the Senate version, compared with current tax law. A married couple with two children making $29,600 only receives the additional $100 per child of the refundable credit under the Senate and House versions. That the CTC provisions largely leave behind low and moderate-income families is particularly unfortunate, as these are the families that live paycheck to paycheck and could most benefit from additional support in raising their children.

Meanwhile, a married couple with two children making $300,000 per year gets the full benefit of the tax credits, $4,000 for the two children under the Senate version. This is on top of a tax cut from other changes in the tax code of at least $8,639 (which would be more if the family has extensive itemized deductions or tax-exempt income). Overall, this family is at least $12,639 better off after doing its taxes, compared with current law, $4,000 due to its new eligibility for the CTC.

For simplicity, these examples assume that all income is earned income and that the filers all take the standard deduction. If, because of buying a home, paying state and local taxes or a combination of the two, middle-income taxpayers now itemize their deductions, the increase in the standard deduction may not help at all and the loss of personal exemptions may mean they pay more taxes.

A married couple starting out with a young child and $60,000 of income, for instance, who now claims $24,000 as an itemized deduction ($18,000 in mortgage interest and property taxes, $4,000 in state and local taxes, and $2,000 in charitable contributions or other deductions) would owe $359 more in federal taxes under the Senate version. Although the family would benefit from the increase in the CTC, that would be more than offset by other changes, such as the loss of personal exemptions.

The chart below shows the specific impacts on these families of the changes in the child tax credit itself but also the changes of the overall tax changes to their individual income tax:

Tax proposals should be examined both in terms of individual provisions and in terms of their overall impact. On the former, under the Senate version the benefits of raising the Child Tax Credit are highly skewed toward the highest income tax-filers. This needs to change, by making the CTC refundable and not extending it so dramatically to the highest income families.

On the latter, the overall structure of the tax provisions largely negate the positive impact expansions of the CTC have for many middle-income families, while bestowing even more benefits on high income ones. Tinkering with the CTC without major changes in other provisions in the tax proposal cannot correct these flaws.

Rather than adding CTC provisions to a bill with other fundamental flaws, Congress should start with how it can make the CTC better reflect the cost of raising families. There exist different bipartisan proposals that would do this, but the proposal before Congress goes in the opposite direction.

Charles Bruner of Ames, a former member of the Iowa House and Senate, is director emeritus of the Child and Family Policy Center in Des Moines. CFPC, he worked with the Iowa Policy Project to form the Iowa Fiscal Partnership. Find his commentary on current issues at childequity.org. Contact him here.

The Case of the Missing Middle-Class Tax Cut

If you’re looking for a real middle-class tax cut in the Senate plan, you’d better put Sherlock Holmes on the job.

If Sherlock Holmes were a United States Senator, he’d be on it: “The Case of the Missing Middle-Class Tax Cut.”

We’ve all heard about the suspicious tax cut. It’s been in all the papers, all the social media posts, anywhere the spin merchants can find a way to promote the idea that the proposed massive and permanent tax-cut giveaway to millionaires, billionaires and corporations is somehow a “middle-class tax cut.”

Puh-leeze.

No reliable information can justify the billing. Middle-class and lower-income taxpayers ultimately will — on average — pay more as a result of this legislation if it becomes law.

In Iowa, the Institute on Taxation and Economic Policy (ITEP) has shown that despite some minor benefits upon enactment, the bill when fully phased in will actually result in a tax increase, on average, for the bottom 60 percent of Iowa taxpayers. Higher up the income scale, tax cuts will remain. (In the graph below, average tax changes for the bottom three quintiles of Iowa taxpayers are shown as increases, above the line.)

Someone in Iowa making $1.5 million in 2027 would get about a $4,800 benefit under the ITEP analysis — not a lot to people at that income, maybe a good payment on luxury box rent at the ballgame.

But that break for the top 1 percent would total about $68 million — a hit to services on which the money could be spent on behalf of all.

Millions of Americans — an estimated 13 million — would lose health insurance under this bill, a large share of those not giving up insurance voluntarily, but because they could no longer afford it.

Billion-dollar estates that already have $11 million exempt from tax under current law would see a doubling of that exemption, as if the first $11 million free and clear is not enough while the millions of working families struggle to get by, some at a $7.25 minimum wage that has not been raised in over eight years (in Iowa, 10 years).

A Child Tax Credit designed to help working families with the costs of raising children would be extended to families earning $500,000 a year — as if those families need the extra help, when families making $30,000 get little from the deal. By the way, that is one of the changes billed as a middle-income break, and even it would expire in 2025.

There is no expiration, meanwhile, on the estate-tax break or on new giveaways to corporations.

If you’re looking for a real middle-class tax cut in this legislation, you’d better put Sherlock Holmes on the job. Even then, anything you find has an expiration date, plus tax increases. And the millionaires’ cuts that remain will clamp down on resources for the essential things that government does to protect and assure opportunity for us all, and our nation’s future.

You cannot afford to do both — provide critical services and also cut resources to pay for them.

It’s elementary.

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