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

Tax bill: Not just a 2017 story

It would be so easy to close the book on the 2017 tax bill, to allow our attention to be diverted to the next issue or threat, because there are so many.

We owe it to ourselves and future generations not to fall for what happened in 2017 on the tax bill in Congress, sold on hyperbole and defended on ideological sand that will give way this spring to damaging cuts to health care and nutrition to those who need it most.

Our senators should have warned us. Instead, they sold only cherry-picked data molded into a messy ball of spin and trickle-down economics, bereft of full context or history.

Senator Joni Ernst did it here: https://outreach.senate.gov/iqextranet/view_newsletter.aspx?id=104023&c=JErnst

Senator Chuck Grassley did it here: https://www.grassley.senate.gov/news/news-releases/grassley-statement-president-trump-signing-historic-tax-reform-legislation-law

Just stick to the facts, and you can see that the expensive tax bill that will give us — conservatively — $1.5 trillion in deficit spending, also provides:
 
Basic RGB•     Breaks that provide meager help to low- and middle-income Iowans expire under this bill, including the Child Tax Credit expansion that the Senator notes in the linked piece, but does not note its emphasis to help the wealthy most, nor the expiration date in 2026.
As a result, as this table shows, the bottom 60 percent of Iowa taxpayers will, on average, see tax increases in 2027 when they are being told they will receive a “tax cut.”
 
•    A lessened value of the Earned Income Tax Credit for low-income working families because it holds down the formula to account for inflation.
•    New threats to the safety net as massive deficits caused by this legislation are used as an excuse to cut critical services that benefit the poor, the disabled, and low-income working families.
 
•     Permanent breaks that only reach the extremely wealthy and large corporations — permanent, at least until a future Congress has the courage to take on the interests that have successfully promoted them.
 
We need to do better in helping Iowans and all Americans understand the impact of major decisions that will affect the health and economic opportunity for themselves and their families.
In the coming months, the Iowa Policy Project will be examining these impacts further and in addition to reports, we will host public forums that expand on that understanding. It would be great to include either or both of our U.S. senators in any of these sessions, in a respectful and engaging environment, in a year when neither senator is on the ballot, so they can more fully discuss the impacts of  the bill that their initial statements did not cover.
 
The timing is important, with so many decisions coming for the Iowa General Assembly that may be affected by the just-passed tax bill in Congress, and responsibilities pushed to the states by Washington.
2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

‘Toto, we’re not in Kansas — yet’

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The unmitigated disaster of tax-cutting in Kansas — which we have noted here, and here, and here, and here — and others have noted as well, is threatened for a curtain call just up the road in Iowa.

Those links might help Representative Guy Vander Linden, who is chair of the House Ways and Means Committee and says in the Cedar Rapids Gazette today that he doesn’t know what happened in Kansas.

Governor Kim Reynolds has indicated since before she took office in May that taxes are on her agenda, and she’s been spreading bad information about our current system when she could be promoting it.

We find out now that the Governor wants to wait until January to tell people what she wants to do. Likewise, details are few from the legislative side. We saw this play out scandously last session, as backroom deals were shoved through the process and signed into law with limited debate and no deliberative, open process that involved the public.

Targets in 2017 were collective bargaining, workers’ compensation, and voting rights. Targets in 2018 are new tax cuts for high-income individuals and the wealthy, undermining public education, and — though they may be seeing they can’t get away with this onepublic-sector pensions that already are stable and taxpayer friendly.

Behind a lot of these moves: The Koch-funded Americans for Prosperity (AFP). Guess who showed up in today’s Cedar Rapids Gazette story? AFP’s Drew Klein, peddling utter nonsense to The Gazette about what happened in Kansas — nonsense not worth repeating here for fear it will spread.

Be very clear about what happened in Kansas: They cut taxes and budgets severely, and forced themselves this year with painful steps to start climbing out of the hole. Ask ’em. They’ll tell you. Oh, wait, they have:

“Business tax cuts were supposed to be magic, they were supposed to spur job growth — and they didn’t,” said Duane Goossen, a former Republican state legislator and state budget director under three governors, in a meeting at the Iowa State Capitol last February.

So, again paraphrasing from The Wizard of Oz”: “Pay lots of attention to the people behind the curtain.”

 

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

Watching the stars from the deck of the Titanic

170118_capitol_170603-4x4The people who will lead the charge against fairly derived and only fairly adequate revenues have been giving folks a taste of what’s coming in Iowa tax policy in 2018.

If you like the current debate in Washington over tax cuts that benefit the wealthy at the expense of services for the vulnerable or investments in opportunity for all, you’ll love the coming debate in Des Moines.

Yet, the language of opening shots already is fascinating.

A Titanic analogy is apt.

Senate Majority Leader Bill Dix says the debate will be about “relief,” not “reform.” “Reform implies that it might be a moving of chairs on the deck and that’s not what we should be pursuing.”

His reference is a familiar nod to the idea of “moving the deck chairs on the Titanic,” a fruitless activity, ironically apt for the agenda he is pursuing — an agenda that includes the radical and fiscally incompetent notion of eventually eliminating the state income tax. What dooms prosperity for the state of Iowa is continuing to fail to invest adequately in the key drivers of the economy where state policy can have an effective impact. True “reform” would correct that.

In contrast, the stated Dix plan is to reduce reliance on the income tax, which is already less than one-third of state and local revenues. The income tax is the only piece of that structure where low- and moderate-income Iowans pay a smaller share of their sometimes meager income in tax than those in the top 20 percent. The property tax and sales taxes are weighted in favor of the wealthiest.

Tax cuts guarantee lower revenues, a reality noted in the current federal tax debate. Lower revenues also mean fewer or lesser services. Think education. Think health care. Think law enforcement. Think clean water, recreation, and quality of life. These are all Iowa assets driven by public investment, on which private businesses thrive and with which businesses make their decisions on where to locate, unlike taxes.

Whatever they are, they’re not “stars.”

Rep. Jake Highfill says “all the stars have aligned” for tax cuts. Stars are bright and shiny. Dreams are made, courses to achievement are set, upon stars.

What have aligned, rather, are the pieces of brute political power. We have seen this already in 2017. The gutting of public-sector collective bargaining rights and worker’s compensation, and eliminating county minimum wages last session, demonstrated a willingness to use the levers of power on behalf of powerful lobbyists in complete disregard for facts, fair play, open debate and traditions of Iowa governance.

Promises don’t mean much.

Cities and counties were assured the state would “backfill” revenue lost to what then-Governor Branstad and legislators proclaimed as the largest tax cut in Iowa history — the 2013 property tax bill. And for a short time they have, making a huge dent in what state funds are available for the investments noted above.

Slower-than-forecast revenue growth now puts that “backfill” in jeopardy. Highfill said last week he would favor “phasing it out or getting rid of it altogether.

Cities and counties were wary of this from the start. Clearly, they had good reason.

Principled tax policy would assure, among other things, adequate revenue, with taxes paid most by those who can most afford to pay. We don’t have either as it stands. The changes appearing on the horizon would only compound the problems in Iowa’s existing structure, which is heavily weighted toward the wealthy and corporations, and against lower- and middle-income working families.

You’re not likely to have a say in what happens before a plan hatched behind closed doors is dumped on the House or Senate floor, whipped through the chambers and sent to the Governor before everyone goes home to campaign.

Lawmakers won’t want to spend a day longer than their taxpayer subsidy permits this spring.

So, brace yourself. Start by securing your deck chair.

2017-owen5464Mike Owen is executive director of the nonpartisan Iowa Policy Project. 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.