Education pays in Iowa

Lily French
Lily French

Give people access to higher education and a myriad of benefits will surface for individuals and the state of Iowa.

Our new report on the return on investment of workforce education shows the benefits and potential benefits from such investments.

At each level of education beyond high school, Iowans work and earn more. For example, those with a bachelor’s degree earn on average $7.26 more an hour than those with only a high school diploma. Families headed by a parent with a college education are also much less likely to live in poverty — and better set to recover in hard times from a job loss.

So, whether you look at unemployment rates, wages, or poverty, it is undeniable that education pays for Iowans. It also pays for the state, because better-educated people on balance earn more, and pay more in taxes, which benefits the state budget.

Our analysis finds that investing in postsecondary education for low-income adults returns tax revenue more than double the state’s program costs. The return: $3.70 in increased tax revenue for every dollar invested in an associate’s degree for low-income adults, and $2.40 for every dollar invested in a bachelor’s degree.

Other strong reasons support investments now in workforce education:

  • First, the declinine in wages for less-educated workers means more Iowa families are struggling to cover basic living expenses;
  • Second, Iowa will face a labor shortage in the future due to our state’s slow population growth and the impending retirements of the baby boom generation; and
  • Third, employers in Iowa had already identified a shortage of a skilled workers as a problem before the recession, and the top 10 fasting growing occupations in our state all demand workers with postsecondary education.

To summarize, Iowa needs an increase in skilled workers to grow our economy after the recession ends and families in Iowa need higher wages to fully support themselves.

With forward-thinking policy moves now, Iowa can increase education and training opportunities for low-income adults, improving their futures and those of all Iowans who will benefit from a stronger economy.

Posted by Lily French, Research Associate

Watch step in talking about Iowa jobs

This month, high-school seniors step onto stages across Iowa, accept a diploma and a handshake, and leave as graduates. Iowa’s job picture shows more than ever that they had better watch their step as they do.

When Iowa’s unemployment rate hit 5.2 percent in March, it was at its highest place in over 21 years.

News reports in recent days noted that rate fell in April — but it was only to 5.1 percent. It’s certainly better than the alternative, but let’s take a breath. While that rate seems low in comparison to the national rate of 8.9 percent, rates above 5 percent are high for Iowa — again, higher than at any point since these new grads were born.

IPP has been tracking job trends in Iowa every month since 2003. Our “JobWatch” project, as well as our “State of Working Iowa” publications, have attempted to inject some important historical perspective in the examination of job numbers.

While we all want to be hopeful for a better economy and better opportunities, we need to watch our path. No one should miss the larger implications of a one-month drop in the unemployment rate from 5.2 percent to 5.1 percent, or a smaller nonfarm job loss — 1,600 — compared with many times that in three of the previous four months. Those implications: The unemployment rate is high for Iowa, and in a very short time we have lost the meager gains achieved in nonfarm jobs in recent years.

As our latest JobWatch release points out, nonfarm jobs have declined in seven of the last eight months. Those jobs were down 32,800 over 12 months, almost two-thirds of the decline coming in manufacturing. Large drops in December 2008, February and March totaled over 28,000 lost payroll jobs. All figures are seasonally adjusted.

If we, too, watch our step in determining the importance of a statistic here or there, we might help our new grads watch their future steps a little better as well.

Posted by Mike Owen, Assistant Director

IPP Open House packs ’em in

Christine Ralston
Christine Ralston

Wow, what an event. Friday afternoon, the Iowa Policy Project hosted an open house and FRIENDraiser at our new office in Old Brick.

We packed the office with friends and supporters. Guests had the opportunity to meet and talk with IPP staff, old IPP staff greeted longtime friends and new staffers were able to meet many of IPP’s friends and supporters.

The event was an opportunity for IPP to show off our new, spacious office. The organization has increased from five to nine staff members in just two years, so our old space was getting a bit cozy.

Our new space has several private offices, a research room and a separate conference room which was dedicated in honor of IPP co-founder Mark Smith.

Mark helped found IPP in 2001 in collaboration with IPP’s Executive Director, David Osterberg. Mark is perhaps best known as former president of the Iowa Federation of Labor, AFL-CIO. For 34 years, Mark worked tirelessly in education, organizing and advocacy for Iowa’s working families.

A short presentation included remarks by David about IPP history and Mark’s contribution to the organization as well as Mark’s remarks about the founding, work and expansion of the Iowa Policy Project.

David Osterberg speaks at IPP's Open House
David Osterberg speaks at IPP's Open House

The event was open to the public. Attendees included past and present members of the IPP board, friends and supporters of IPP’s work and several of our nearby elected officials: Congressman Dave Loebsack, State Senator Joe Bolkcom of Iowa City, State Representative Nate Willems of Mount Vernon, and Johnson County Supervisor Rod Sullivan.

Many, many thanks to those of you who took the time to come and speak with us, see our new offices and make donations in support of our work. We truly appreciate it.

Posted by Christine Ralston, Research Associate

Iowa reaches towering point on wind

Teresa Galluzzo
Teresa Galluzzo

Today the American Wind Energy Association (AWEA) released its annual rankings. These rankings showed Iowa moved up to second in the nation for installed wind capacity, after installing close to 1,600 MW in 2008. Iowa had a total installed 2,791 capacity of megawatts by year-end 2008, equal to 11 percent of the nation’s total wind capacity.

The Iowa Policy Project issued its own report this morning, to fill in some of the details about Iowa’s outstanding growth. The most impressive is that according to new estimates by the Iowa Utilities Board, wind fuels about 15 percent of the electricity generated in Iowa. This is a big increase from the 5 percent wind-powered generation estimated in 2006.

With this big jump, Iowa is now a world leader in the percent of electricity generated from wind power. To find comparable examples of wind production, we must look across the ocean to European countries. According to AWEA, Denmark leads the world, producing more than 20 percent of its electricity from wind energy.

Growth in wind production in Iowa, 1998-2008
Growth in wind production in Iowa, 1998-2008

Iowa’s outstanding growth in wind production calls into question the common argument that the costs of reducing our greenhouse gas emissions and addressing climate change are too high to justify action.

Looking at Iowa’s electricity prices since 1998 — the year before Iowa’s wind boom began — our electricity prices have remained below the national average and in fact have not increased as quickly as the national average price in the last three years (2005 to 2007). Assuming a somewhat similar portion of the wind-generated electricity produced in Iowa was actually consumed in Iowa, wind’s great expansion did not cause prices to spike.

Even as Iowa is leading the way in producing electricity from wind power, significant room remains to reduce our greenhouse gas emissions by increasing our use of renewable energy sources. On the upper boundaries, AWEA estimates that Iowa has the potential to generate 62,900 megawatts from wind power.

The new estimates of Iowa’s outstanding wind production, and its potential for new wind production, show that Iowans need not fear taking strong steps to address climate change. In fact, while still being thoughtful, Iowa should rapidly enact policies that continue to help our renewable energy production grow.

Posted by Teresa Galluzzo, Research Associate

Federal deductibility: the reality

The word of the month in Iowa tax discussions is “federal deductibility.” It means you can deduct your federal income tax from your state income at filing time. Only a handful of states let their residents do it.

Iowa is one of only three states that permit taxpayers to deduct the full amount of federal income taxes paid.

Make no mistake: Federal deductibility is a benefit targeted for Iowa’s highest-income families. Some others benefit, but mostly, it is those at higher incomes.

The last, best analysis of this we have shows that the wealthiest 20 percent of Iowa taxpayers receive 80 percent of the tax benefit from federal deductibility (2002 figures). For the other 80 percent of Iowans, the tax cut amounted less than half of 1 percent of their income. Using those 2002 numbers, by the way, the dollar amount of the average tax cut for the top 1 percent of taxpayers was about $13,900 — more than the income of people in the bottom 20 percent.

To understand why wealthier people get the greatest benefits under federal deductibility, consider this: You have to pay federal income tax to get the Iowa deduction. Many Iowans at moderate and low incomes simply do not make enough money to pay income tax to the federal government — but Iowa law still makes them pay income tax. some provisions in the tax-reform bill in the Iowa Legislature make that situation better for low-income families.

Remember these perspectives when someone defends “federal deductibility” as something to help low- or middle-income working families. For most of them, it’s just not so.

Focus on Facts: Reform Lowers Rates

There’s a lot of confusion being promoted by some about the tax-reform plan before the Iowa Legislature.

There are three main points to it:

  • • It lowers Iowa’s tax rates, taking the top rate down by 2 percentage points.
  • • To enable the lower rates, it does away with federal deductibility.
  • • There are additional boosts in tax credits targeted to low- and moderate-income working families.

Iowa Fiscal Partnership analysts have — like others — been going through the figures provided by the nonpartisan Legislative Services Agency (LSA) about the effects of the total package. Those effects have been portrayed many ways. IFP considers the following to be the most important points to be understood from that LSA analysis:

  • • For both 2009 and 2010, 73 percent of households with incomes below $50,000 a year would see their taxes either stay the same or decrease under the reform proposal.
  • • During 2009, households earning below $50,000 would, on average, see a tax change of no more than $70 in either direction, as a cut or an increase.
  • • Overall, Iowans earning below $125,000 would, on average, see a tax cut or no change.

That last number is an important one. We’ve been hearing a lot in recent days about effects on small business. Many of the claims don’t hold water.

As our researchers have found, more than 70 percent of small business owners in the U.S. earn less than $125,000. Because many small-business owners report and pay their state income tax on individual returns, this plan obviously helps them, too.

This plan makes a small but positive change in the tax code.

Posted by David Osterberg, Executive Director

Common sense, stability in tax reform

Statement of Beth Pearson, Iowa Policy Project
Public Hearing on Income-Tax Reform • Iowa House Chamber • March 31, 2009

Beth Pearson
Beth Pearson

Thank you, and good evening. In my capacity as a researcher at the Iowa Policy Project, I evaluate potential budget and tax policies according to whether they make our overall fiscal system more sound and help support our shared public priorities.

In general, good changes to our tax system are ones that make it fairer, more competitive, more stable and secure, and easier to understand. We want a system that provides sufficient revenue to fund essential public services, but we want it to generate that revenue in a way that respects a taxpayer’s ability to pay a tax and doesn’t distort an individual’s private economic decisions.

The income tax reform proposal now before you goes a long way in moving Iowa’s overall tax system — comprised of income, sales, and property taxes — in the direction of these basic principles. Let me talk about just two of those principles: competitiveness and fairness.

First, competitiveness. When profits dip for a small business owner during a recession, their income tax bill goes down automatically. Even those small business owners lucky enough to have steady profits in these tough economic times will likely see a tax decrease as a result of this proposal. The Tax Policy Center, a project of the Urban Institute and the Brookings Institution, found that, nationwide, seventy percent of taxpayers with small business income earned less than $100,000 in 2009. Assuming the same distribution holds true for Iowa, that would mean that more than 70 percent of taxpayers with small business income in Iowa would see an average tax decrease under this proposal. I think that makes it a more competitive system.

Second, fairness. There’s no question that there are particular types of households who benefit the most under this package: low-income working families with children. In addition to seeing lower income tax rates, these families also stand to benefit from expansions in the Earned Income Tax Credit, which helps make work pay by targeting tax assistance to income earners with children, as well as expansions in the child and dependent care credit. So, yes, this package does offer a disproportionate share of its benefits to low-income families who are sending their kids to child care every day so that they can hold down a job in a tough economy. I think that makes it a fairer system.

Most tax changes made during the past 20 years in Iowa haven’t held up when scrutinized according to good budget and tax principles. But this proposal offers us an opportunity to take a step in the direction of common sense and fiscal stability, and I urge the Legislature to pass and the governor to sign this bill.

See the Iowa Fiscal Partnership analysis (3-page PDF) of the legislation, Iowa Income Tax Reform: An Emphasis Upon Sound Principles.