Lesson from the Recovery Act

The 2009 Recovery Act offered a good example of how state fiscal relief, in addition to the temporary boost in Medicaid funding, can aid in recovery from economic problems caused by the current health emergency in the United States.

Editor’s Note: This is an excerpt of a larger report from the Center on Budget and Policy Priorities (CBPP), “Immediate and Robust Policy Response Needed in Face of Grave Risks to the Economy.” It points to lessons policy makers can take regarding state fiscal relief in the American Recovery and Reinvestment Act of 2009, enacted to move recovery from the Great Recession. For the full CBPP report, click here.

Providing Additional Needed State Fiscal Relief

Given the severe threat to the economy — and the resulting threat to state finances — states will likely need additional fiscal relief beyond what (a temporary increase in the share of Medicaid costs borne by the federal government, or FMAP) … would provide. During the last recession, states faced budget shortfalls totaling about $600 billion. The Recovery Act’s FMAP provisions provided roughly $100 billion in fiscal relief — a big help, but well short of what it would have taken for states to avoid laying off teachers and other workers and cutting services in other ways that deepened the recession. Increasing the FMAP is the single most important way to get fiscal relief efficiently to states, but Congress should also enact additional emergency fiscal aid to states. We recommend that this added fiscal relief take a similar form to the Recovery Act’s State Fiscal Stabilization Fund (SFSF), which provided roughly $60 billion in fiscal aid to states.

Given the wide range of fiscal challenges states are facing, they should have significant flexibility over how to spend this aid. The SFSF required states to spend 82 percent of the aid on education, including both K-12 and higher education. A new version of the SFSF should allow states to spend a smaller percentage of the aid on education, so that states are free to best respond to the COVID-19 outbreak and its economic fallout, but still require that a substantial share be used to support state education systems. While many schools and universities will likely be closed in the next few weeks, teachers still need to be paid (to avoid hardship and further drag on the economy). And if revenues decline as sharply as expected, states will face serious difficulties in adequately supporting their schools in the coming fiscal year, when schools will be trying to make up for lost class time. Education accounts for roughly 40 percent of state spending, the single largest part of state budgets, making it very difficult for states to avoid cutting educational services when revenues decline sharply.

As under the Recovery Act, states would be required to distribute funding to schools using their existing funding formulas, which favor low-income districts, or by distributing funding directly to Title I schools (schools that serve a large number of disadvantaged students). States should also be encouraged to use the funding to increase college tuition assistance for low-income people facing a tough job market and students whose families’ ability to help pay for school has diminished. Targeting state fiscal aid to protect education systems in the coming year would benefit the nation’s economy in the longer term by improving the educational outcomes of students, many of whom are now missing weeks of school. And requiring states to distribute a substantial share of this aid to schools would help protect against some states accepting the aid and then using it instead to cut taxes. As under the Recovery Act, this new version of the SFSF should include a maintenance-of-effort provision that requires states to maintain their own education spending at current levels.

Finally, Congress should also consider certain forms of direct aid to localities, whose own budgets will also be deeply harmed. For example, Congress should consider direct aid to public transit systems, whether buses or subways, which stand to lose much of their fare revenue in coming weeks — losses that many of these systems will likely have difficulty recovering from on their own and that will further strain local budgets, risking cuts in other needed public services.

This excerpt is one small section of a CBPP report by Sharon Parrott, Aviva Aron-Dine, Michael Leachman, Chad Stone, Dottie Rosenbaum, LaDonna Pavetti, Ph.D., Peggy Bailey, Chuck Marr, and Kathleen Romig. We share it on the Iowa Policy Project blog as an example of one approach that research and experience have shown will be needed as states and local governments attempt to contribute to recovery from the current health emergency.

Better target senior tax breaks

Why should a senior retired couple pay less income tax than a working couple with similar or even less income? That can be the situation in Iowa, and many other states.

Also see Iowa Fiscal Partnership news release

A new paper about state tax breaks for seniors shows one reason pre-2020 chatter about new tax breaks in Iowa is a bad idea.

Elizabeth McNichol of the Center on Budget and Policy Priorities (CBPP) notes in her report Wednesday that special income-tax breaks for seniors cost states 7 percent on average in 2013, a figure that will rise with growth in the population over 65.

As McNichol notes, “The senior tax breaks are poorly targeted because of their design: most states provide them regardless of the recipient’s income or savings.”

Put another way: Why should a senior retired couple pay less income tax than a working couple with similar or even less income? That can be the situation in Iowa, and — as McNichol notes — in many other states as well.

It is a point Peter Fisher and Charles Bruner have made in Iowa Fiscal Partnership (IFP) analysis over the years about Iowa’s special breaks for pension income, and as legislators phased out what had already been a limited tax on Social Security income.

Already, Iowa has freshly passed, costly and inequitable tax cuts scheduled to be phased in over the next few years, yet state legislators just last week were talking about bigger cuts in 2020. Given attempts to expand senior breaks in 2018, but not adopted in the final package, there is a danger that new income-tax cuts in 2020 could include the new senior breaks.

Among changes considered in 2018 was an expansion of Iowa’s already generous pension exclusion from $6,000 (single) and $12,000 (couple) to $10,000 and $20,000, respectively.

McNichol’s paper notes Iowa is one of 28 states that already completely exempts Social Security income from tax, and one of 26 that exempts at least some pension income.

Iowa, in short, is already quite generous to retirees. Also as McNichol notes, for some this might make sense — seniors at low incomes. But not all.

“A large share of these costly breaks go to higher-income seniors who need them the least. States should reduce this expense by better targeting relief to seniors with low incomes,” she wrote.

Bruner and Fisher noted this problem in their IFP paper last year:

Iowa has adopted a number of special provisions benefiting seniors. While the elderly and disabled property tax credit is available only for those with low income, the other tax preferences are not based on ability to pay:

•   All Social Security benefits are exempt from tax.

•   The first $6,000 in pension benefits per person ($12,000 per married couple) is exempt from tax.

•   Those age 65 or older receive an additional $20 personal credit.

•   While non-elderly taxpayers are exempt from tax on the first $9,000 of income, for those age 65 or older, the exemption rises to $24,000. For married couples, the threshold is $13,500 for the non-elderly, but $32,000 for seniors.

Iowa Fiscal Partnership analysis of tax policy and tax proposals is always grounded in fundamental principles of taxation, among them fairness: Similarly situated taxpayers should be treated similarly in tax policy.

What matters more to measure a taxpayer’s ability to pay is the amount of income, rather than its source. To tax income from wages at a higher rate than retirement income violates that principle.

Mike Owen is executive director of the nonpartisan Iowa Policy Project and director of the Iowa Fiscal Partnership, a joint effort of IPP and the nonpartisan Child and Family Policy Center in Des Moines. mikeowen@iowapolicyproject.org

Dumbing down definition of poverty

The CBPP report illustrates that the Trump plan would magically declare that some people below the current poverty line are no longer poor.

If you wanted to reduce the number of people defined as being in poverty, without reducing poverty itself, what might you do? You could always mess with the numbers.

The Center on Budget and Policy Priorities has a solid report out today showing how a Trump administration proposal would do just that. Authors Arloc Sherman and Paul van de Water examine the administration’s proposed alternative to the way cost-of-living adjustments are made to the official poverty guidelines.

The first problem, of course, is that the official poverty guidelines have almost nothing to do with the cost of living. They are an outdated formula — they are a half-century old while, not surprisingly, families’ spending needs have changed. We have shown this regularly at the Iowa Policy Project with our Cost of Living in Iowa research.

Here is what our report, by Peter Fisher and Natalie Veldhouse, noted last year:

Cost of Living Threshold Is More Accurate than Federal Poverty Guideline

Federal poverty guidelines are the basis for determining eligibility for public programs designed to support struggling workers. However, the federal guidelines do not take into account regional differences in basic living expenses and were developed using outdated spending patterns more than 50 years ago. The calculations that compose the federal poverty guidelines assume food is the largest expense, as it was in the 1960s, and that it consumes one-third of a family’s income. Today, however, the average family spends less than one-sixth of its budget on food. Omitted entirely from the guideline, child care is a far greater expense for families today…. Transportation and housing also consume a much larger portion of a family’s income than they did 50 years ago.

Considering the vast changes in consumer spending since the poverty guidelines were developed, it is no wonder that this yardstick underestimates what Iowans must earn to cover their basic needs. Figure 1 above shows that a family supporting income — the before-tax earnings needed to provide after-tax income equal to the basic-needs budget — is much higher than the official poverty guidelines. In fact, family supporting income even with public or employer provided health insurance ranges from 1.1 to 3.0 times the federal poverty guideline for the 10 family types discussed in this report. Most families actually require more than twice the income identified as the poverty level in order to meet what most would consider basic household needs. Even with public health insurance, the family supporting income exceeds twice the poverty level in all cases except the two-parent family with one worker.

Because the guidelines do matter in the computation of eligibility for work-support programs, it is essential that they are not eroded further to disadvantage low-income families. As the CBPP authors note, not only is the poverty line itself too low to reflect basic needs, but the annual cost-of-living adjustment, the Consumer Price Index for All Urban Consumers (CPI-U), also is flawed:

Prices have been rising faster than the CPI-U does for the broad categories of goods and services that dominate poorer households’ spending. The poorest fifth of households devote twice as large a share of spending to rent as the typical household, for example, and the cost of rent rose 31 percent from 2008 to 2018, compared to 17 percent for the overall CPI-U. In addition, recent studies find that low-income households may face more rapidly rising prices than high-income households even for the same types of goods, possibly because low-income households have fewer choices about where and how to shop.

The Trump plan would make that worse, substituting another cost-adjustment measure that slows the pace of upward adjustments in the poverty guidelines. The plan would magically declare that some people below the current poverty line are no longer poor.

Messing with the numbers is never an answer to identifying the challenges one might address with better public policy. Seriously analyzing the relevant ones is essential.

Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City. mikeowen@iowapolicyproject.org

Mother’s Day topic: Fostering opportunity

Enjoy brunch on Mother’s Day, but have a good discussion at the table. There are ideas on the table in Washington about what is needed to help all mothers care for their families.

Mother’s Day is always a good time to focus on public policies that can make mothers’ important jobs easier.

Too often, policy makers look the other way as wages and work supports erode. Costs rise, debt mounts, children grow, and bills pile up. The challenges become daunting.

One proposal on the table would give mothers in low- and moderate-income families a break. The Working Families Tax Relief Act would help 23 million mothers across the country — and 211,000 in Iowa, 158,000 of them working — to look forward.

The proposal would strengthen both the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) — again, a benefit to millions nationally, kids in low- and middle-income families, according to estimates by the Center on Budget and Policy Priorities (CBPP). These benefits would be shared broadly across racial groups.

In Iowa alone, the plan would benefit 472,000 Iowa children, according to CBPP.

The proposal strikes a stark contrast to the 2017 tax law that targeted benefits heavily toward wealthy households and corporations — not working families. The principal so-called “middle class” tax cut in that bill was a very meager increase in the CTC, from $1 to $75, to 87,000 children in low-income working families in Iowa.

As CBPP’s Chuck Marr notes in this blog post, a single mother of two who makes $20,000 as a home health aide, for example, would see a boost in her CTC by $2,210 and her EITC by about $1,460 — a total gain of about $3,670.

Working parents at lower levels of income need to be able to afford basic necessities, home and car repairs or other costs of transportation and education or training to get better jobs. The EITC and CTC are critical supports that make work pay for families in low-income situations.

Mother’s Day is a good time to honor those values that we all share. So, go to brunch if you want, but don’t avoid this discussion at the table.

Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City.

mikeowen@iowapolicyproject.org

Restoring equity in tax policy — Plug tax loopholes

Iowa is out of step with the majority of states by refusing to close corporate tax loopholes. Equity demands better.

Through the years in Iowa, very few lawmakers have had the courage to take on an utter abomination in our corporate tax system: tax loopholes.

It is one thing to expressly pass a tax preference — a credit, exemption or deduction — with a specific purpose, clearly defined for all taxpayers to see and reviewed for its effectiveness. (Iowa does not provide such accountability with many such preferences, but that is for another post.)

It is quite another thing, however, to see weaknesses in your tax code exposed and exploited by large companies, and to leave those holes open for routine abuse. Welcome to Iowa.

A new report by the Center on Budget and Policy Priorities discusses this issue as part of overarching tax policy that states can use to advance racial equity and sustain services responsibly. From the report:

States can nullify a variety of tax avoidance strategies employed by large multistate corporations by adopting a reform known as “combined reporting,” which treats a parent company and its subsidiaries as one entity for state income tax purposes, thereby minimizing companies’ ability to shift income earned in a state to other states that are tax havens (like Delaware and Nevada).

The figure below shows Iowa is out of step with the majority of states on this issue. All but one of our neighboring states has a corporate income tax, and all but one of those states has combined reporting to stop companies from avoiding taxes that were originally intended by the tax code to be collected.

The Iowa Policy Project and Iowa Fiscal Partnership have been encouraging Iowans to look at this issue for many years. We made it part of our 2018 Tax Policy Kit — explaining here how Iowa could save itself tens of millions of dollars that are squandered to companies that effectively set their own tax policy. The Iowa Taxpayers Association consistently defends this break that not only burdens our state, but tilts the playing field to big, multistate corporations and against Iowa-based, Iowa-focused businesses.

Two governors, Tom Vilsack and Chet Culver, at times proposed adoption of combined reporting, but the issue — while getting some attention at the committee level — has not reached a floor vote in the House or Senate.

Iowa’s tax code needs to be fair to all residents. It needs to generate revenue to sustain services that are important to all residents, from education to water quality to law enforcement to health care. To allow corporations to set their own rules by exploiting weaknesses in the tax code defies these oft-stated Iowa values of fairness and accountability.

Posted by Mike Owen, Executive Director of the Iowa Policy Project.

mikeowen@iowapolicyproject.org

Tight margin — big difference

The two-vote House margin on the Farm Bill would mean big changes for struggling Iowa families if accepted by the Senate.

More Iowans than you might expect have a stake in what happens in Washington in the coming days on the Farm Bill. It’s not just farmers.

While the Farm Bill addresses conservation, commodities, rural development, and crop insurance, among other issues, it also carries reauthorization of the Supplemental Nutrition Assistance Program (SNAP) — formerly known as Food Stamps.

In the 2014 Farm Bill, SNAP constituted 80 percent of spending.[i] That investment makes a big difference to about 1 in 9 Iowans — and to the local stores where they use their SNAP benefit. About 350,000 Iowans received SNAP assistance in April of 2018.[ii]

The Senate proposal, which may come to a vote next week, differs markedly from the House bill, which passed 213-211 despite bipartisan opposition. The House bill would cut SNAP for 1 million households, imposing new and unnecessary work requirements on households where people are already working, or unable to work.[iii]

Robert Greenstein, president of the nonpartisan Center on Budget and Policy Priorities, summarized the challenge for low-income working people under the House bill:

Robert Greenstein,
Center on Budget and Policy Priorities

Among those likely to lose food assistance are a considerable number of working people — including parents and older workers — who have low-wage jobs such as home health aides or cashiers and often face fluctuating hours and bouts of temporary unemployment that could put their SNAP benefits at risk. In addition, substantial numbers of people with serious physical or mental health conditions, as well as many caregivers, may struggle either to meet the monthly work-hours requirement or to provide sufficient documentation to prove they qualify for an exemption — and, consequently, may be at risk of losing nutrition assistance.[iv]

The Senate bill looks to improve the SNAP job training program by using feedback from local employers on the skills and opportunities needed in the area. It continues to invest in pilot testing of job training programs, while House-proposed work requirements have not been tested in such state-level pilots.[v]

The bill would also focus assistance on underserved populations, fund nutrition education initiatives, and reauthorize SNAP. It reduces verification barriers for elderly and disabled households by extending certification periods for two to three years.

SNAP is critically important for child development, educational attainment, preventing disease, and lifetime earnings.[vi]

The Senate and House Farm Bill proposals offer decidedly different directions for a proven anti-poverty program that already assures that thousands of Iowans receive nutrition assistance.

Natalie Veldhouse is a research associate for the nonpartisan Iowa Policy Project. nveldhouse@iowapolicyproject.org

 

[i] United States Department of Agriculture, “Projected Spending Under the 2014 Farm Bill.” January 2018. https://www.ers.usda.gov/topics/farm-economy/farm-commodity-policy/projected-spending-under-the-2014-farm-bill/
[ii] Iowa Department of Human Services, “F-1 Food Assistance Program State Summary – April 2018.” May 2018. http://publications.iowa.gov/27559/
[iii] Center on Budget and Policy Priorities, “House Agriculture Committee’s Farm Bill Would Increase Food Insecurity and Hardship.” April 2018. https://www.cbpp.org/research/food-assistance/chairman-conaways-farm-bill-would-increase-food-insecurity-and-hardship
[iv] Robert Greenstein, Center on Budget and Policy Priorities, “Greenstein: Partisan House Farm Bill Would Turn Clock Back on Efforts to Reduce Hunger and Hardship.” June 21, 2018. https://www.cbpp.org/press/statements/greenstein-partisan-house-farm-bill-would-turn-clock-back-on-efforts-to-reduce
[v] Center on Budget and Policy Priorities, “Senate Agriculture Committee’s Bill Strengthens SNAP and Avoids Harming SNAP Households.” June 2018. https://www.cbpp.org/research/food-assistance/senate-agriculture-committees-bipartisan-farm-bill-strengthens-snap-and
[vi] Feeding America, “Child Food Insecurity: The Economic Impact on our Nation.” 2009. https://www.nokidhungry.org/sites/default/files/child-economy-study.pdf

Housing threat to 65,000 Iowans

New proposals would destabilize secure housing for thousands of Iowans, with tremendous impacts on child development including social and emotional well-being, and physical health.

Over 36,000 low-income households in the state of Iowa depend on rental assistance from the U.S. Department of Housing and Urban Development (HUD)[1] Rental programs are crucially important for the financial security of Iowans who are able to receive benefits. However, 3 of 4 households qualifying for rental assistance are unable to access them due to funding constraints.[2] A proposal from the Trump Administration and a House bill proposed by Rep Dennis Ross seek to further stifle this shrinking program.

Iowans projected to be affected by housing proposals
By congressional district (Source: Center on Budget and Policy Priorities)


In Iowa, the average income of households using rental assistance is just over $12,000. Ninety-seven percent of Iowans using rental assistance fit the category of very low income, meaning they earn 50 percent of the local median income or less. Housing affordability is an issue in both rural and urban areas — 18,700 of Iowa households using rental assistance are in non-metropolitan areas.[3]

The HUD proposal seeks to increase the percentage of a household’s income that they must contribute to rent from 30 to 35 percent. That 17 percent increase is on average a $55 monthly rent increase for families.[4] The changes proposed by the Trump Administration would impact 65,400 Iowans, including 24,600 children. The plan also stands to triple minimum rents for households with a non-elderly or disabled member[5] and eliminate deductions used by the elderly and disabled, and by working families for childcare expenses.

The Ross bill also would eliminate income deductions for eligibility and increase rents for Iowa’s elderly and disabled rental assistance recipients.[6] The bill would impact over 24,400 Iowa households receiving rental assistance; with a 41 percent monthly rent increase for recipients.

Rental assistance encourages work by freeing up household income for work-enabling basic needs such as food, transportation and child care. Secure housing has tremendous impacts on child development including social and emotional well-being, and physical health.[7] These two proposals threaten to destabilize housing for many working low-income households with children, as well as for the elderly and disabled all across the state of Iowa.

Natalie Veldhouse is a research associate for the nonpartisan Iowa Policy Project. Contact: nveldhouse@iowapolicyproject.org

 

[1] Center on Budget and Policy Priorities analysis of 2016 HUD administrative microdata

[2] Center on Budget and Policy Priorities, “Policy Basics: Federal Rental Assistance.” November 2017. https://www.cbpp.org/research/housing/policy-basics-federal-rental-assistance

[3] U.S. Department of Housing and Urban Development. “Assisted Housing: National and Local Dataset.” 2017. https://www.huduser.gov/portal/datasets/assthsg.html#2009-2017_query

[4] Center on Budget and Policy Priorities, “Trump Plan Would Raise Rents on Working Families, Elderly, People with Disabilities.” April 2018. https://www.cbpp.org/blog/trump-plan-would-raise-rents-on-working-families-elderly-people-with-disabilities

[5] Center on Budget and Policy Priorities, “Trump Plan to Raise Minimum Rents Would Put Nearly a Million Children at Risk of Homelessness.” April 2018. https://www.cbpp.org/blog/trump-plan-to-raise-minimum-rents-would-put-nearly-a-million-children-at-risk-of-homelessness-0

[6] Center on Budget and Policy Priorities, “House Bill Would Allow Sharp Rent Increases on Struggling Low-Income People.” May 2018. https://www.cbpp.org/blog/house-bill-would-allow-sharp-rent-increases-on-struggling-low-income-people

[7] Research and Practice, “US Housing Insecurity and the Health of Very Young Children.” August 2011. https://ajph.aphapublications.org/doi/abs/10.2105/AJPH.2011.300139