Pale ‘I’ on white flag of surrender

oldcap-flowersChange the mascot from a hawk to a chicken. Bleach the black and gold out of that flag before cheerleaders run it past 70,000 people in the football stadium.

Iowa faces the greatest challenges perhaps in our lifetimes to higher education and lifelong learning opportunities. These challenges are fomented by a band of political opportunists who are driving down our public investments where they are most needed. In the face of these attacks, administrators at the University of Iowa quake in their otherwise comfortable chairs and do the bidding of those who would diminish or even destroy higher education.

Already weak pushing back against funding challenges that the Board of Regents blame for raising tuition, the UI this week announced plans to shut down seven educational centers and make reductions in 3 to 6 more. It was a unilateral decision and one done behind closed doors, with no input from those most affected — much as the Legislature and Governor have done in the last year and a half on a range of issues from workers’ rights to tax policy to local government authority.

Not surprisingly, a center serving working families — the Labor Center — is one that stands out on the list of planned closings. This comes a year after the gutting of collective bargaining, workers’ compensation and minimum-wage laws, and amid plans to destabilize public employee pensions.

As if that were not enough, the process itself has been appalling and not one that well serves the reputation of the University of Iowa.

The Labor Center director was called in from her earned vacation last Friday to have the newbie Law School Dean tell her the center is being closed, and that the announcement would come today (Thursday). After people dared to speak up about it in hopes of having an impact — something a university that champions critical thinking skills would welcome — the administration went ahead and announced the closings two days early.

A state university should model good governance, transparency and public involvement, especially when our Legislature and Governor do not. And when it fails for whatever reason, we must ask where Iowans can turn when they are looking for answers about laws that supposedly protect them in the workplace.

The Labor Center is one of those places, and the UI administration is taking it away. Three directors of the Labor Center have served on the board of directors of our organization, and our own exceptional staff has worked many times with the equally qualified and professional staff of this respected university center.

In short, we know first-hand of the value of the Labor Center. Why, we wonder, does the university administration not recognize that value and trumpet its work better?

It is reasonable to ask if the leadership of the University of Iowa will ever fight back against the powerful and greedy forces that have undermined it. Why would President Bruce Harreld, or the regents, put up with this never-ending assault on a once-proud institution? Are they even curious about how many people would stand with them if they stood up?

Absent a demonstration of pride and leadership into what a state university can be, a white flag of surrender is appropriate above Old Capitol, or the UI Hospitals, or the College of Law, or the Writers’ Workshop, or Kinnick Stadium.

If it makes you feel any better, put a big “I” on it. Make that “I” pale — maybe light gray — we wouldn’t want to be too bold or speak too loudly. Go Hawks.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. He is a 1980 University of Iowa graduate and a member of the Professional Advisory Board of the UI School of Journalism and Mass Communication. mikeowen@iowapolicyproject.org
See more about attacks on higher education in Iowa and impacts of funding choices:
David Osterberg: “Too far for a tax-cutter”
Brandon Borkovec: “Tuition rising — Is anyone surprised?”

House tax bill backs wealthy

It’s the Middle-Class Mirage: The current proposal in the Iowa House backs the wealthiest, not Iowans in the middle.

Editor’s Note: As tax negotiations continue in Des Moines, the ultimate House plan has yet to emerge. This post is based on the latest House bill available.

The “middle class tax cut” proposed by the Iowa House is a mirage. For the vast majority of Iowans, much or most of the small reduction in income taxes is taken back by the increase in sales tax — the other part of the House bill.

Compared to what middle-income Iowans paid in state income taxes when they filed this month for 2017 — and what they would have paid in the future if federal taxes had not been cut — the income tax cut in House File 2489 amounts to about $100 on average. Those with income between $20,000 and $100,000 represent over half of Iowa taxpayers. But they will face higher sales tax payments averaging about $47 a year. The net savings will amount to about $4 a month — but that’s on average. For some, there will not be a savings at all.

Table 1. Top 1 percent would take over one-third of tax benefit
House Bill: Income Tax Reduction Compared to Pre-Federal Baseline*
Iowa residents, tax year 2023

Book1

*Reduction in taxes compared to projected tax payments in 2023 under Iowa law but without the effect of the Federal tax cut legislation.
Source: IFP analysis of Iowa Department of Revenue estimates

For those at the top — the 0.7 percent of Iowa resident tax filers with income over $500,000 — the story is different. The average tax cut is $6,852, offset by on average $224, or less, in sales taxes and leaving them with at least $6,600 in net savings.

And that small group of well-off taxpayers gets 36.4 percent of the total income tax cut.

While the top 1 percent gets a tax cut averaging 11 percent, the other 99 percent get an average cut of 4 percent. If sales taxes were taken into account, the results would be even more skewed.

Table 2. Effects of Sales Tax Provisions of the House Bill — Iowa residents

Book1b

Source: Institute on Taxation and Economic Policy, April 2018

2010-PFw5464

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

pfisher@iowapolicyproject.org

 

The elephant and the gorilla

Both an elephant and a gorilla are in the small rooms where citizens are crowded out of the discussion on massive, radical tax policy changes in Iowa.

The elephant is an image of Iowa taxes on business concocted by corporate-funded lobbyists and organizations that make a mockery of the concept of independent research and sensible analysis. Most people know it’s nonsense and political spin and if they don’t, they should — rather than repeating it.

So, instead of the nonsense, look at these two charts, with data drawn from annual reports by national business consulting organizations, that offer a look at Iowa’s state and local taxes on business. Both are quite simple and sensible calculations, of taxes paid by businesses. They show how taxes differ across the states as a share of the states’ economies (Ernst & Young), or as a share of pre-tax profits (Anderson Economic Group).

Note: State and local taxes together are the key with what legislators are doing, because state law effectively governs all state and local tax policy.

Ernst&YoungFY2016

Anderson

As you can see, Iowa ranks only 28th highest in one measure and 29th highest on the other — and in both cases is part of a very large pack comprising the majority of states. In reality, state and local taxes on business really do not differ much.

If the rankings really mattered, Iowa lawmakers and the Governor would be boasting about those real measures, using them to attract business. As IPPs Peter Fisher describes on our GradingStates.org website, other things matter more than taxes. Meanwhile, “business climate” rankings matter little.

On that same IPP-sponsored site, you can learn about the birth of the elephant — a common reference is to Iowa’s ranking of 40th best, which is merely an arcane and bizarre mix of factors that the corporate-supported Tax Foundation cooks into a nonsensical business tax climate index.

Now for the gorilla. It’s one you’ve heard from the Iowa Policy Project and Iowa Fiscal Partnership for many years: massive spending on tax credits for corporations with little or no accountability (see chart), and Iowa lawmakers longtime refusal to close corporate tax loopholes that could gain the state $60 to $100 million a year.

170411-biz_credits

Now, the Governor, unlike the Senate leaders, says we cannot afford corporate tax “reform” this year, but also says we need to wait on tax-credit reform. She says we need to review the credits first.

Likewise, the Senate plan calls for a review of tax credits during the interim between this session and next, while making several immediate changes without any explanation before the new review.

The common thread: Both the Governor and legislative leaders recognize there is outrage about reckless tax credit spending when actual needs are held back. They pat that gorilla on the head, say, “We’ll get to you soon,” and if history is a guide, they never will — not on the credits already shown to be most in need of reform.

These credits have been reviewed — and reviewed, and reviewed — by the nonpartisan staff of the Department of Revenue, which puts all the reports on its website for all to see. (Here and here.) Yet, the Governor and the Senate leadership demand a new review of tax credits.

Interestingly, no such review is demanded for the Senate tax plan itself, or was provided upon the introduction of the Governor’s plan, even though both would drastically alter our tax system. No data, little public input, ram it through, worry later about the consequences (or how to spin it).

In the end the question for our public leaders is whether they are focused on how we can provide essential public services better. You cannot provide them without revenue, and the Governor’s plan reduces and the Senate plan would gut revenues.

You can bet the folks running the kinds of businesses we want in Iowa know the difference between tax cuts that actually mean little to their business, and the value of smart policy that supports well-educated workers and a good quality of life for themselves, their families and their workers.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership. mikeowen@iowapolicyproject.org

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Full reports from national business consultants:

Ernst & Young, August 2017: Total state and local business taxes — state-by-state estimates for fiscal year 2016, page 12, Table 4, column 7 (TEBTR, taxes as a percent of gross state product).

Anderson Economic Group, Apri 2017: 2017 State Business Tax Burden Rankings, page 19, Exhibit III. State and local taxes paid by business, share of pre-tax gross operating surplus, 2015.

Related:

The Tax Foundation’s Waste of Time Index,” Peter Fisher, IowaPolicyPoints.org, October 17, 2017

Why do solar credits matter?

Editor’s Note: The proposed Senate overhaul of personal and corporate income taxes in Iowa includes elimination of the solar energy systems tax credit. This post by IPP co-founder David Osterberg offers a first-hand look at that credit in particular. The Senate bill would eliminate 11 tax credit programs, call for additions to four credits and changes to six others. Both the Senate bill and the Governor’s bill call for a review of tax credits between the 2018 and 2019 legislative sessions. See this page on the Department of Revenue website for evaluations of various Iowa tax credit programs.

Basic RGB

So, why is a repeal of the Iowa solar tax credit a big deal? It makes a big difference in someone’s decision to put up solar panels. Four years ago, I put just under two kilowatts of solar on my garage. At the time Alliant gave me a rebate for solar just like they still do for buying a more efficient heating and air conditioning system. My after-rebate cost for the panels was about $7,000. The Iowa tax credit allowed me to cut my Iowa taxes by about $1,000 because of my purchase.

The credit has helped many Iowans. Between 2012 and 2017, the credit was used for 3,395 projects. Over that period the credit provided $21.6 million in tax cuts for businesses and residents like me. Our total investment in solar during that time was more than $166 million.

There are limits to how much any project can receive. It is $5,000 for residents and $20,000 for a business. The total amount of credits in any year is also limited to $5 million. The credit is scheduled to phase out as a federal investment tax credits phases out and will be gone for residential projects by 2022.

Much of the cost of my project went to a local contractor who put the panels on my garage. Some went to import the panels but still, 700 Iowans have pretty good jobs because of this $5 million credit that is targeted for elimination in the Senate leadership bill. By contrast, Apple got $20 million from the state to build a server farm that will employ 50 people. What is wrong with this picture?

2016-osterberg_5464David Osterberg is co-founder and lead environment and energy researcher for the nonpartisan Iowa Policy Project. He served six terms in the Iowa House of Representatives from Mount Vernon from 1983-95. dosterberg@iowapolicyproject.org

Triggers to drive Iowa down

If you thought it was obvious that our state can ill afford more tax cuts, you were right.

DSCN5662-detail240200In the midst of yet another episode of mid-year budget slashing, and with the prospect of further cuts for next year, a reasonable person might conclude that the state cannot afford any more tax cutting. But that is what Governor Reynolds has proposed, in a bill that would reduce state revenues by over $1 billion over five years.

But not to worry, the governor’s press release assures us: “The plan will also include revenue targets (or “triggers”) that will act as a safeguard in the event of a downturn in the economy.”

A better description of these triggers is a set of one-way ratchets that will force revenues down and leave the state with perennial budget shortfalls on into the future.

The bill sets forth five sets of rates. Each year, the growth in revenues over the previous year is compared to a target, and if the target is met, a further set of rate cuts go into effect.

Here’s the rub: There is no trigger for the first set of rate cuts. They will go into effect for tax year 2019 regardless, and they are far and away the largest of the rate cuts.

Furthermore, the standard deduction is doubled that year. The revenue losses from these measures will be offset to an extent by a reduction in federal deductibility from 100 to 25 percent and by sales tax increases, but the net effect is still a $129 million cut in state revenues for fiscal year 2019, the budget the legislature will be enacting in the next few weeks.

After tax year 2019, further reductions in rates are tied to the attainment of revenue targets. Those targets will not be difficult to meet. Assuming the most recent revenue forecast for FY2019 (4.2 percent growth over 2018) is not too far off, revenue growth of 2.9 percent or less in the following two years, and 3.2 percent in the third, will be enough to trigger all of the remaining rate cuts by fiscal year 2022. These target revenue increases are well under the 3.6 percent per year forecast used by the department of revenue.

At that point, the state will be locked into a set of tax cuts that will drain $300 million from the state budget each year. There is no going back. Income tax revenues will be 10 percent lower than under current law. Sluggish growth, or the next recession, will leave the state once again forced to cut services already pared down drastically from the past few years of service cutting.

Consider what would happen in a recession. If we experienced a downturn in the economy next year, it is possible none of the revenue targets would be met, since they are all expressed in dollar levels of revenue, not growth rates from the previous year. A decline in revenue next year would make it harder to grow sufficiently to attain those dollar targets in future years. But the first year rate cuts, averaging well over 10 percent, already would have done damage to the ability to provide services in a downturn, when some are most needed.

Let’s remember what a real safeguard looks like. It is called a rainy day fund. When the economy is doing well, the rainy day funds are filled. When growth turns sluggish or a recession hits, the rainy day fund can be drawn down to maintain services. That is how we keep our public schools from having to cut programs and increase class sizes, how we keep the court system functioning without year-long delays in justice, how we keep our state parks open, how we keep family social service workers from becoming so burdened that children fall through the cracks.

If you thought it was obvious that our state can ill afford more tax cuts, you were right.

2010-PFw5464Peter Fisher is research director of the nonpartisan Iowa Policy Project. pfisher@iowapolicyproject.org

Getting it right on minimum wage

Editor’s Note: IPP Research Director Peter Fisher authored a guest opinion for The Gazette in Cedar Rapids (published February 4) about minimum-wage research on which Fisher and University of Iowa Economics Professor John Solow collaborated for the Johnson County minimum wage task force. In the same issue, The Gazette included a staff editorial,Local wage hike achieved its goals.” The Fisher guest opinion ran beside another guest opinion by a spokesman for the low-wage industry backed Employment Policies Institute, an incessant critic of minimum-wage laws. Below is a response from Fisher and Solow to that criticism.

Michael Saltsman’s guest opinion in the February 4 Gazette says we got it “all wrong” in our report on the effects of the minimum wage increase in Johnson County. We examined county employment, earnings, and business establishments, overall and for the two major low-wage sectors, retail and “leisure and hospitality,” as well as overall unemployment, and retail sales in eating and drinking establishments. Despite the title of his column, he apparently found nothing wrong with any of these analyses. He takes us to task only for not focusing on restaurants, a subset of leisure and hospitality.

UnfIMG_3595ortunately for Mr. Saltsman’s critique, the actual story for restaurants in Johnson County is the same as the story we found for the larger hospitality sector, which includes bars, hotels and motels. Average weekly earnings in restaurants after the minimum wage increase rose at nearly three times the rate for the period preceding the wage increase, and rose at a much higher rate than in the comparison counties (Linn, Story and Black Hawk), or the state as a whole. The number of restaurant jobs continued to rise in Johnson County, and the number of restaurants or eating and drinking establishments continued to rise as well, in both cases at a faster rate than in the other counties and the state as a whole.

Our analysis relies on the best data available: the Department of Labor’s Quarterly Census of Employment and Earnings, and state sales tax data. Both come from an actual census of all private sector businesses, not a survey of a sample of businesses. To sort out the effects of the minimum wage you need to do what you can to control for other factors affecting the restaurant industry more broadly. That is why we compared the experience in Johnson County with the two other state regents’ institution counties, as well as neighboring Linn County, and the state as a whole, where the minimum wage remained unchanged.

What our analysis shows is that the average year-over-year growth rate of restaurant jobs in Johnson County fell from 3.5 percent for the four quarters prior to the wage increase, to 1.5 percent for the four quarters ending in the middle of 2017. Proof of a harmful minimum wage effect, as Mr. Saltsman would have us believe? Hardly. The growth rate in jobs in restaurants fell in the state of Iowa, and in all the comparison counties, only more so. While jobs in Iowa City restaurants grew on average at 1.5 percent per year post wage increase, they grew at only 0.3 percent in the state of Iowa and in Story County, 1.0 percent in Linn County, and fell 3.8 percent in Black Hawk. Furthermore, in all cases the growth rate was not only lower in the other areas, but fell more dramatically after 2015 than in Johnson County.

Perhaps Mr. Saltsman used a less reliable data source. Perhaps his math was wrong. Perhaps he did not choose to look at trends in restaurant jobs elsewhere, because that would have undercut his point. At any rate, it looks like we got it all right.

—————

For more information about the minimum wage and local minimum wages in Iowa, see previous reports on IPP’s website.

 

New blows to public accountability

curtains-tighterCompanion bills in the Iowa House and Senate move Iowa closer to making true monopolies out of the state’s regulated electric utilities.

Utilities are permitted monopoly status out of efficiency. It would be difficult and expensive to set up two or more competing electric utilities to serve one community, with separate power lines. So, in exchange for a monopoly presence in a given area, privately owned utilities are subject to community approval and state regulation of their rates and services.

These new bills would remove a significant share of regulation, and the bills are moving quickly with little scrutiny — while high-profile legislation from school funding to budget cuts captures more attention.

But the utility bills demand attention, just as utility bills do every month in your household budget. Presently the Iowa Utilities Board oversees MidAmerican Energy and Alliant Energy. This oversight protects customers, who have no choice as to which company brings them electricity.

It is ironic that legislators would threaten a structure that works and promotes economic development. Iowa has some of the lowest energy rates in the nation (3rd or 4th lowest depending on the year). At the same time, this state has developed one of the strongest clean energy economies. These make Iowa a big draw for certain industry — a far greater reason to locate here than tax breaks that any state can offer.

Under legislation being proposed (SSB3093 and HSB595), many policies that have led to Iowa’s cost-effective clean energy leadership could not have been implemented, especially energy efficiency programs mandated almost 30 years ago by the Iowa Legislature.

Without regulation, monopolies would profit by producing more power rather than help customers save energy. They could unfairly treat customer-generated solar and wind energy and discriminate in favor of their own energy generation.

In fact, the pending bills would let them cut back substantially on the energy efficiency plans they are required to file each five years.

Left to their own preferences, monopolies would charge the smallest users more. Alliant proved this in its last rate filing. The Alliant plan would increase the cost of electricity by about 10 percent and increase the mandatory charge just to hook up by 30 percent. The plan was designed to put more costs on those who use less, because they are low-income or because they have used the utility rebates to buy more insulation or buy more efficient appliances.

But because Alliant needed permission to raise rates, this rate scheme was not allowed.

The bills in the Legislature would encourage this behavior. And few have been at the table. A subcommittee last week met in a room so small that video indicated most of those present were standing, and the discussion was cut off to move the bill on to a full committee more quickly.

The strategy with the corporate-friendly SSB3093 and HSB595 is the same that we saw in 2017 on collective bargaining and workers compensation. These forces are still at work, to lessen public oversight and public accountability, with changes in law that were not promoted publicly in the last legislative campaigns, and have been developed behind closed doors.

David OsterbergDavid Osterberg, who served six terms in the Iowa House of Representatives, is former director of the nonpartisan Iowa Policy Project and is IPP’s lead researcher on environmental and energy policy. dosterberg@iowapolicyproject.org

Hear Osterberg’s Feb. 8 interview with KVFD-AM radio host Michael Devine about this issue at this link.