No commercial tax relief until we see TIF reform

We must consider what tax breaks are already in place for commercial property.

Peter Fisher
Peter Fisher

Scare tactics about commercial property taxes in Iowa are nothing new. Legislators and governors of both parties have fanned that idea for years, appealing to businesses that pay tax on 100 percent of their property value, while residential homeowners pay on about half.

Of course we all want to retain and attract good jobs. But it is usually a mistake to simply look at one part of our tax code and make sweeping generalizations about the impact on business activity. Property taxes are just part of the overall system of state and local taxes, both for individuals and businesses.

Businesses that occupy commercial real estate are also taxed under the corporate or personal income tax. Iowa’s personal income tax level is about average, and the corporate income tax in Iowa is well below average. Research has shown that Iowa’s overall level of business taxation (including property taxes) is about average among the 50 states.

There are inequities in commercial property tax that we could fix — but we should do so strategically. And if we’re going to look at the rates, or consider rollbacks or other cuts, we must consider what breaks already are in place.

A good starting place: the out-of-control growth of tax abatements and subsidies through tax increment financing (TIF). While commercial property owners in general are expected to pay tax on the full assessed value of their property, TIF arrangements drastically reduce or eliminate commercial property taxes, but only for selected property owners. This creates a disparity, and equity issues within a community. One store pays little or no property tax; a competitor down the street pays the full rate.

Any substantial reductions in taxes on commercial property should also address the inequities and waste inherent in Iowa’s system of tax increment financing. There should be no commercial property tax relief without substantial TIF reform.

Posted by Peter Fisher, Research Director

Renewable energy and Iowa schools

We’re asking for your help as we seek to better understand where and why schools are choosing to invest in renewables and whether they are seeing benefits.

Will Hoyer
Will Hoyer

Almost five years ago IPP put out a report on Iowa schools that were using (or were considering using) wind power to generate electricity. We’re thinking about doing a followup report that might look at not only wind, but solar energy as well.

Do you know of schools around you that have solar panels on their property? Are any thinking about installing solar panels? Are solar panels or wind turbines being used in science classes or other parts of the curriculum in schools in your town? Has the installation of renewable energy generation impacted the way people think of renewables? We’re asking for your help as we seek to better understand where and why schools are choosing to invest in renewables and whether they are seeing benefits.

One example of a school that recently installed a small solar array on it is the Oak Ridge Middle School in Marion, Iowa.  A generous donation from the Linn County REC allowed the school to install 20 solar panels totaling 2.6 KW of capacity.  The solar array has been integrated into class work and is a valuable learning aide.  Real-time data about the system’s output is available online.

Iowa schools are expected to graduate students with a knowledge base that will serve them in the future. Clearly wind and solar power are a part of that future and students who grow up around renewable energy will likely be more comfortable with and accepting of the role renewable energy can and should play across Iowa.

Posted by Will Hoyer, Research Associate

New IPP report shows reality of ‘discount’ health

“The future of discount medical plans, in the wake of health reform, is unclear. What is clear is the legion of problems than accompany this sprawling and unevenly regulated industry.”

Five years ago, our “Nonstandard Jobs, Substandard Benefits” report illustrated that Americans in temporary, contract and part-time jobs without health insurance turned to medical discount cards as a substitute, many mistakenly believing they had health coverage.

Colin Gordon
Colin Gordon

Today, the Iowa Policy Project released a new report from Senior Research Consultant Colin Gordon, Not Your Father’s Health Insurance,” which examines the problems emerging with the growth of discount plans in an increasingly expensive and confusing health-care market. “In some cases, states are stepping in to protect consumers,” Gordon says. From the executive summary:

The future of these plans, in the wake of health reform, is unclear — and will depend largely on the pace and terms of its implementation. What is clear, as of this report, is the legion of problems that accompany this sprawling and unevenly regulated industry. These include:

  • Aggressive and deceptive marketing practices which suggest or imply conventional insurance coverage, or exaggerate the savings or discounts offered;
  • Sweeping claims of access to “participating providers,” often in the absence of any clear agreement or commitment by listed providers to honor the plan’s discounts or commitments; and
  • Elusive benefits — given plan costs and provider participation — for most plan members.

Click here to read the one-page executive summary online.
Click here for the 15-page full report in PDF form (19 pages total including cover, executive summary, etc.).

 

This IPP report is the first among four being produced as part of a $335,043 contract with the U.S. Department of Labor Employment and Training Administration for research on employment and training costs of uninsurance and the impact on contingent workers. “Not Your Father’s Health Insurance” was funded totally from this federal contract.

Posted by Mike Owen, Assistant Director

Getting a handle on ‘unemployment’

Underemployed workers are not merely individuals who are not earning as much as they would have liked to; rather, they are individuals who are unable to find employment in jobs that match their skills and availability, and as a result are forced to survive on reduced earnings.

Noga O'Connor
Noga O'Connor

One effective way to gauge the effect of the recession on the state’s economy is tracking the state’s unemployment rate. But how accurate is the unemployment rate? The official rate for 2009 was 6.3 percent — does this mean that 93.7 percent of the labor force in Iowa was gainfully employed?

Not exactly.

The official rate only accounts for those actively searching for work. The Bureau of Labor Statistics offers annual averages for several broader measures. If we include, for example, those who want to work but stopped looking for work, the 2009 figure rises to 7.1 percent.

And what about underemployed workers, such as part-time employees who would have like to work full time, but whose hours were cut back or who are unable to find full-time jobs? If we add those who are involuntarily part-time, the 2009 unemployment rate rises to 11.7 percent.

To complicate things further, even the figure of 11.7 percent can be viewed as conservative. The Bureau of Labor Statistics has no measure of the number of Iowans that are working in jobs that are below their education, skill or experience levels — another form of underemployment.

These examples — involuntary part-time workers and workers who are employed below their skills — are of non-unemployment labor market behaviors that should not be overlooked when estimating the impact of the recession on the state’s economy.

Underemployed workers are not merely individuals who are not earning as much as they would have liked to; rather, they are individuals who are unable to find employment in jobs that match their skills and availability, and as a result are forced to survive on reduced earnings. In the case of over-educated workers, they are also not seeing the earning premiums that are needed to offset the financial investment in higher education.

Underemployed workers have a distinct effect on the labor market. Over-educated workers are taking jobs from those with less education, as there are still not enough jobs for everybody. As employers gravitate toward the more-educated workers, over-education at the top is accompanied by unemployment at the bottom.

Posted by Noga O’Connor, Research Associate

Health reform ruling one of many; should not affect implementation

Andrew Cannon, research associate
Andrew Cannon

Until this week, health reform had cleared a number hurdles. Federal district court judge Henry Hudson’s ruling Monday struck down the individual responsibility provision of the health reform law.

And though it was certainly disappointing news for supporters of the Patient Protection and Affordable Care Act and could have serious negative consequences if the decision is upheld by the Supreme Court, the ruling shouldn’t cause either reform supporters to despair or reform opponents to rejoice.

First, some perspective: the individual mandate has already faced three federal court challenges, including yesterday’s ruling. Judge Hudson’s ruling against the individual mandate is the only ruling to strike down any portion of the Affordable Care Act. Both earlier rulings found that individual mandate in particular and the entire health reform law fell within Congress’ constitutional powers under the Interstate Commerce clause.

The individual responsibility provision (Section 1501 of the Affordable Care Act) requires all individuals to purchase health insurance or face a tax penalty, with exceptions for those with religious convictions against health treatment and individuals facing extreme financial hardship. In order to prevent insurance companies from denying coverage to sick individuals or excluding preexisting conditions from coverage, a requirement that all individuals have insurance had to be included. Without such a provision, there would be a serious temptation for individuals to “game the system” — avoid purchasing insurance until they got sick.

But the other reason that this ruling is not as bad as it’s been made to sound, and in fact has some positives for health reform supporters, is that it struck down just that one provision of the law. Though Judge Hudson ruled that the individual responsibility provision was a constitutional overreach by Congress, he stated that the rest of the law falls within Congress’ constitutional purview. Virginia’s Attorney General, Kenneth Cuccinelli, requested that Judge Hudson halt the implementation of the law. Judge Hudson denied that request.

Lawmakers can (and should) continue to work toward the law’s full implementation, even in light of Judge Hudson’s ruling. The constitutionality of health insurance exchanges and the expansion of Medicaid are not in question.

This is just one ruling of three thus far, and undoubtedly more to come. When the legal wrangling is settled, we’ll know whether or not the individual responsibility requirement — and the tighter insurance regulations that rely on it — remains a workable part of the law. If the provision is found to be unconstitutional, there are workable solutions that would keep the insurance regulations in place and replicate the effects of an individual responsibility requirement. Until then, however, policymakers should continue their implementation efforts.

Posted by Andrew Cannon, Research Associate

Estate tax debate to continue, as billions trickle away to rich

We’ll get to have the same arguments for the next two years, while more untaxed billions trickle away in windfalls to the rich.

Mike Owen
Mike Owen

Americans’ generosity to the wealthy knows few boundaries. Those boundaries appear to be relaxing even further in the tax deal announced Monday. Case in point: the estate tax.

Various options on the table for the estate tax would relax its impact on inherited wealth from current law. While not in effect in 2010, current law would return the estate tax to a level higher than it was as recently as 2009, when the maximum rate was 45 percent, with an exemption for the first $7 million ($3.5 million per spouse). President Obama had proposed making those 2009 parameters permanent, which would cost between $229 billion and $253 billion over 10 years, compared with current law, not including the interest on the added debt it promised.

Generous, to be sure, but until the deal announced Monday, it appeared to be a workable compromise. No one seriously expected they could repeal the estate tax, and no one expected the estate tax to return to a 55 percent maximum rate and $2 million exemption ($1 million per spouse) as it exists in current law for 2011. And the repetitive, often misinformed debate would effectively be ended. Now, instead of the President’s compromise, we appear to be looking at an estate tax of only 35 percent, with an exemption of $10 million ($5 million spouse), for two years.

Keep in mind that even at 2009 levels, the estate tax affected less than three-tenths of 1 percent of all estates — only the extremely richest fortunes being passed on — and is the only means to tax previously untaxed income for those fortunes. So, while working families see most of their income taxed, the extremely rich do not without an estate tax.

As noted in a Center on Budget and Policy Priorities analysis earlier this year, the parameters for a new estate tax as agreed to by the White House and Republican negotiators will be much more costly than the generous compromise earlier offered by the President. When proposed earlier this year by a bipartisan group of senators who have supported full repeal of the estate tax, including Iowa’s Chuck Grassley, CBPP noted the 35 percent/$10 million parameters would “cost considerably more” than the President’s proposal:

That would cost at least $60 billion more over ten years than making the 2009 rules permanent, despite soaring federal budget deficits. Moreover, the larger the estate, the greater the tax cut for wealthy heirs would be.

However, even that estimate is understated, because it assumed a phase-in of the 35 percent/$10 million parameters. As proposed, the cost is estimated to be more than double — $125 billion over 10 years.

Worth noting: The deal in Washington on the estate tax would be for two years. So, if the deal passes, we’ll get to have the same debate and hear the same arguments for the next two years, while more untaxed billions trickle away in windfalls to the rich.

Posted by Mike Owen, Assistant Director

Increasing the Social Security Retirement Age: An Unnecessary and Unfair Cut in Benefits

Increasing the retirement age is a substantial benefit cut for all retirees, and penalizes low wage workers disproportionately.

Peter Fisher
Peter Fisher

The President’s Fiscal Commission (the “Deficit Commission”) recently joined the chorus of public figures calling for cuts in Social Security benefits. The commission did this partly in the guise of tying increases in the retirement age to increases in longevity.

This seems at first like a reasonable approach: as we live longer, perhaps we should be expected to work longer. What is not well-understood, however, is that an increase in the full benefit retirement age is a benefit cut for all future retirees, regardless of when they retire. Furthermore, increases in longevity are likely to be felt very unequally. The net result could be lower retirement income and fewer years spent in retirement for low wage workers retiring in the latter half of this century.

The table below shows how Social security benefits depend on the age at which you retire. Under current law, those born in 1960 or later will receive full benefits (100.0 in the table) if they retire at their full retirement age of 67. Those retiring sooner receive less (for the rest of their lives) and those retiring later receive more, up to age 70.

If the full benefit retirement age is increased to 69, as the commission chairs propose (others have suggested raising it to 70), then all retirees from that point on receive about 13 percent less in benefits, every year, than they would have under current law.  Those who wanted to retire at 62 or 63 would no longer be eligible for any Social Security benefit. Those wanting to retire at 66 (the full age for the baby boomers retiring now) would get 80 percent of the full benefit instead of 93.3 percent.

Table-Social Security BenefitsThe Commission and others who argue that increased life expectancy is a major contributor to the projected shortfall in Social Security revenue in 2037 or thereabouts ignore an important trend. Life expectancy at retirement has become very unequally distributed.

Those born in 1912 who reached age 65 in 1977 could expect to live about another 15 years. For those born in 1960, it depends on how well off you are.

Those with earnings above the median can expect to live another 22 years in retirement. But those with earnings below the median have a life expectancy beyond age 65 of just 17 years.

(See Dean Baker and David Rosnick, The Impact of Income Distribution on the Length of Retirement, Center for Economic Policy Research, at http://www.cepr.net/index.php/publications/reports/impact-of-income-distribution-on-retirement-length ).

If the increasing inequality in longevity continues and the retirement age is raised to 69 or 70, a lower wage worker born in 1973 and retiring at 69 or 70 could actually expect to enjoy retirement for fewer years than his or her grandfather who retired at the full retirement age of 65 in the mid-1970s.

In actuality, no benefit cuts of any kind are needed to guarantee payment of full Social Security benefits for the rest of this century. Modest increases in the earnings threshold and the payroll tax are sufficient. Increasing the retirement age is a substantial benefit cut for all retirees, and penalizes low wage workers disproportionately.

Posted by Peter Fisher, Research Director