What ‘small government’ looks like

“Well, it is like, you want smaller government, this is what it looks like.” — Rich Leopold, outgoing Iowa Natural Resources Director

Andrew Cannon, research associate
Andrew Cannon

What does “smaller government” mean?

Richard Leopold, outgoing director of the Iowa Department of Natural Resources (DNR), has a few answers in an article in today’s Des Moines Register.

State general fund allocations to DNR have dropped over the past several years, from $22.1 million in FY09 to $15.6 million in FY11.

As a result of decreased general fund support, DNR has been forced to drop a number of programs and services. Leopold said:

I have gotten I don’t know how many complaints from legislators and small business owners about, “You used to do this and now you don’t any more.” Well, it is like, you want smaller government, this is what it looks like.

In a difficult economy, Leopold sees increased use of state parks. So more people are using the bathrooms, filling the trash cans and wanting to hike in the outdoors, and DNR has less money for staff to mow the grass, clean the bathrooms, empty the trash cans and keep the trails open.

Cuts in revenues lead to cuts in services that we all use. Often, they are the services that we’re so accustomed to receiving, we don’t notice them until they are gone.

Posted by Andrew Cannon, Research Associate

Beware of simple figures

Many numbers reflect more than one obvious trend — sometimes even its exact opposite.

Noga O'Connor
Noga O'Connor

In the last couple of years, many Americans have turned into consumers of figures that tell us how the economy is doing, and many of us can quote figures of unemployment, foreclosures and home sales. But numbers are never simple, and reducing some economic trends into a single figure may be misleading.

Let’s take, for example, earnings data. Should we assume that the economy is getting stronger if weekly earnings go up? Interestingly enough, that could be the wrong assumption. As struggling employers choose to lay off more workers, they usually opt to dismiss workers on the low end of the earnings scale, resulting with the earnings average and median going up. Thus, a rise in earnings is more likely to reflect an economic weakening than an economic strength.

Hourly earnings data may be misleading as well, as it does not account for the impact of the recession on weekly work hours. Throughout recessions, employers cut down on hours, and the labor market share of part-time workers goes up. In this case, 40 states are showing a drop in the average number of weekly work hours between 2007 and 2009. When looking only at hourly earnings, though, a very different picture emerges:  the average hourly pay rose in 48 states between 2007 and 2009. Which one is it then? The bleak work hours figure, or the encouraging hourly pay figure?

This is a puzzle we should keep in mind whenever we consume, and then recite, workforce figures. Many numbers have the potential to reflect more than one obvious trend – sometimes even its exact opposite.

Posted by Noga O’Connor, Research Associate

Robbing the hungry tomorrow to help the sick today?

Deficit demagogues make points in Congress, but miss the point about good recovery policy.

Andrew Cannon, research associate
Andrew Cannon

Should we rob the hungry tomorrow to help the sick today?

Economic recovery efforts should be aiding both — and other vulnerable populations — and neither at the expense of the other.

Congress is showing renewed interest in passing an extension of the temporary increase in the federal government’s share of Medicaid financing.

The proposed extension, however, could come at a steep price. To offset the cost of extending the Medicaid increase, Congress is looking at reducing Supplemental Nutrition Assistance Program, or SNAP (formerly known as food stamps) by $6.7 billion.

Deficit demagogues may be making points in Congress, but they miss the point about good recovery policy.

It’s no secret that the federal budget deficit has grown over the past decade. But the long-term deficit is primarily due to a few select causes: the Bush tax cuts of 2001 and 2003 that heavily favored the highest earners, the deficit-financed wars in Iraq and Afghanistan, and the dip in tax revenues due to the recession.

Recession recovery efforts, such as the Recovery and Reinvestment Act of 2009, which included the original increase in federal Medicaid payments, add a negligible amount to the long-term deficit, while providing immediate benefits to the most vulnerable Americans and stimulating the economy. An analysis of Recovery Act provisions by Mark Zandi, chief economist at Moody’s Economy and former economic adviser to Sen. John McCain’s presidential campaign, estimated that every federal dollar invested in SNAP generates $1.74 of economic activity.

Congress will need to address deficit concerns. But doing so at the expense of the most vulnerable Americans doesn’t make sense fiscally, morally or economically.

Posted by Andrew Cannon, Research Associate

Health Insurance Help Arrives for Small Businesses

Health reform has brought an immediate potential benefit to many small businesses.

Andrew Cannon, research associate
Andrew Cannon

Help has finally arrived for small businesses and their employees. The rapidly rising cost of health insurance has made it extremely difficult for many small businesses to provide their employees with health insurance, and entirely precluded many others. In addition, because they lack the bargaining power and large risk pooling of larger employers, small businesses face higher premiums than larger employers.

Health reform, or the Patient Protection and Affordable Care Act (PPACA) should ease this problem for some small businesses. Firms that pay for at least half of their employees’ premiums and have 24 or fewer employees may qualify for a health insurance premium tax credit of up to 35 percent of the premium’s average cost.

An Iowa Fiscal Partnership policy brief details the small business health insurance premium tax credit. The table below illustrates potential credits based on number of employees and how much they are paid.

table-HC creditsFamilies USA, a national consumer advocacy group, and Small Business Majority, released a report this week estimating that as many as 51,100 Iowa small businesses may be eligible for some portion of the tax credit, with as many as 14,000 of those eligible for the full 35 percent credit.

Though similar state-level incentive programs have had varying levels of success in inducing small businesses to provide insurance to their employees, the PPACA credits appear poised to make a real difference for small businesses.

Blue Cross Blue Shield of Kansas City saw the tax credits as an opportunity. It began marketing the new tax credit to small businesses that were not providing insurance benefits to employees.

Its efforts had a tremendous payoff for Blue Cross Blue Shield of Kansas City, to small businesses in that area, and to their employees. Sixty small businesses in the area that had previously not offered health insurance to employees signed up for BCBS’s small business health insurance plan. As a result of the tax credit and BCBS-KC’s marketing efforts, Small Group sales have increased 179 percent between April and June of this year, meaning 5,000 new customers for it, and 5,000 more Kansas Citians with health insurance.

Posted by Andrew Cannon, Research Associate


Over-regulated?

As we have seen, it is hard to regulate in America or in Iowa.

David Osterberg
David Osterberg

How much regulation is right for the United States? One might expect demand to rise after the speculative fury that ruined financial markets and then nearly destroyed the economy, or after the massive Gulf of Mexico oil spill. However, some guys still take every chance they can to get on TV claiming g’mnt is the problem, crying that the economy is overregulated and they want less of it.

Actually, too little regulation leads to great potential mischief. We have a great example of it right here in Iowa. In 2008 we had massive floods all over eastern Iowa. Short-term responses dealt with the aftermath of the disaster, but we faced long-term questions as well.

Sensible regulatory policy would try to avoid the worst effects of another flood. We could limit development in the 500-year flood plain or plan for dikes to be breached, to let water flow onto farmland rather than on to city streets. (Compensating farmers and landowners is a better option than rebuilding cities, businesses and homes.)

A committee of Iowa experts looked into how to avoid the worst disasters from flooding. They recommended limits on development and establishing ways to spread out the flood wave before it hit cities and built-up areas.

The result? Legislation to do both was introduced into the most recent legislative session but powerful farm groups and developers were too strong and nearly nothing was done.

The Gulf oil spill, bankers speculating on our country’s future, and unwise development in the flood plain are all good reasons to rein in markets. However, as we have seen, it is hard to regulate in America or in Iowa.

Posted by David Osterberg, Executive Director

Who ‘gets it’ on estate tax? This fellow does

Return the estate-tax debate to the real world.

One former congressman gets it. We will soon find out how many of our current members of Congress do as well.

Former U.S. Congressman Berkley Bedell from northwest Iowa writes in today’s Des Moines Register that eliminating the estate tax would compound tax policy mistakes that only allow the super-rich to get richer and richer.

On an issue distorted beyond recognition by emotional, inaccurate and at best disingenuous arguments made by those who would do away with the estate tax, Bedell is a breath of fresh air.

In his column, Bedell offers the relevant questions:

Do we want to properly pay our teachers and make it possible for our young people to attend college regardless of their family’s wealth? Do we want to build an economy where common people can have jobs and provide for their families? Do we want to attack our dependence upon Mideast oil and the pollution of our planet? Do common people matter? Or do we want to mostly help the top 1 percent of our population become richer and richer and own more and more of our country by cutting their taxes so that we put their wealth ahead of the lives of the other 99 percent of our people?

Bedell is right on the mark.

Return the estate-tax debate to the real world of our budget choices of what we need as a nation, and how we should pay for it.

Posted by Mike Owen, Assistant Director

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