Ten years and counting: Iowa’s inaction on the minimum wage

170118_capitol_170603-4x4It was the first bill Chet Culver signed into law as Governor of Iowa: an increase in the minimum wage, from $5.15 to $7.25 in two steps, to be fully in force Jan. 1, 2008.

“This is a historic occasion,” Culver said, Todd Dorman reported in the Waterloo Courier.

A historic occasion, and falling fast into history. Wednesday, Jan. 25, 2017, marks the 10th anniversary of that day. Low-wage workers have waited for an increase, through five state legislative campaigns and two gubernatorial elections.

They’ve heard promises and spin, facts and nonsense, and it all comes out the same: Iowa’s official policy is that businesses can get away with paying hard-working people, sometimes in unpleasant working circumstances, a measly $7.25 an  hour.

And the facts remain the same: Hundreds of thousands of Iowa workers would benefit from a minimum wage increase — over 300,000 from an increase to $10.10, over 400,000 from an increase to $12 — and there is no guarantee that they will even see a vote this year.

Perhaps the only reason they might is that four counties had the courage to take on the issue. The wage is now $10.10 in Johnson County, with Linn, Wapello and Polk counties following Johnson by approving increases that when implemented will set minimums from $10.10 to $10.75.

That is, if the Legislature permits them to stand. Governor Terry Branstad and the business lobby want a uniform wage — with no real indication whether that means an increase — and this could result in repeal of the local increases.

Understand: We do not have a monolithic statewide labor market. It makes perfect sense for local officials to respond as best suits their communities. And it is nonsense that seeing different requirements in different counties is a problem for businesses — other than the fact that they might not want to pay more.

Someday, we may see a statewide minimum wage set at a meaningful level, and indexed to inflation. There is no guarantee from this Legislature or this Governor — in fact, history shows it is unlikely.

So, as we mark the 10th anniversary of the signing of our piddling minimum wage, one that leaves Iowa behind 29 states and a growing number of cities and counties around the nation, we might want to consider how long we want Culver’s action in 2007 to be the historic one.

owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project.

Contact: mikeowen@iowapolicyproject.org

A brief, shining moment

It is not too late for Iowa lawmakers to address these issues and include some water in the tax credit reform glass. We said that in 2010, and we can say it again in 2015.

It was a brief, shining moment for Iowa, and it came five years ago today.

A special Tax Credit Review Panel appointed by then-Governor Chet Culver, after an in-depth examination of all Iowa tax-credit programs, offered a 10-page review with some tough recommendations.

As the Iowa Fiscal Partnership* stated the day of the report’s release, Jan. 8, 2010, the panel “took an important step to make Iowa business subsidies more accountable and transparent.”

Major recommendations of the Tax Credit Review Panel were to:

•   Provide a five-year sunset on all tax credits;
•   Eliminate the refundability of the Research Activities Credit for large companies;
•   Eliminate the film tax credit;
•   Eliminate of the transferability of other credits;
•   Place all business credits under a $185 million cap;
•   Reduce the rate for the School Tuition Organization (STO) Tax Credit and lower the cap; and
•   Impose an income test for the Tuition and Textbook Tax Credit.

Action in the Legislature, unfortunately, fell well short of those bold proposals, as we noted in a report that spring. In their biggest moves, lawmakers set up a periodic review of tax credits but required no action to affirm the value of any credits, and they put light restrictions on some credits. Some of those limits already have been raised; the proposal to restrict the STO subsidy for private school tuition not only was ignored but the credit has been expanded.

In short, five years later, Iowa is as lax as ever in its treatment of these subsidies. Under the sunset clause recommended back then, we would in 2015 be preparing for a round of debate and action to keep, expand, limit or eliminate certain tax credits. Instead, we have no expectation of any debate, let alone any action. If the credits are working, we don’t know because beneficiaries are not forced to show it.

It is not too late for Iowa lawmakers to address these issues and include some water in the tax credit reform glass. We said that in 2010, and we can say it again in 2015.

The seven members of the Tax Credit Review Panel, by the way, were Richard Oshlo, then interim director of the Department of Management; Fred Hubbell, interim director of the Department of Economic Development; Rob Berntsen, chair of the Iowa Utilities Board; Bret Mills, executive director of the Iowa Finance Authority; Cyndi Pederson, director of the Iowa Department of Cultural Affairs; Mark Schuling, director of the Iowa Department of Revenue; and Jeff Ward, executive director of the Iowa Agricultural Development Authority.

Their work was good and important, and with hundreds of millions of dollars at stake, we should not forget it.

Owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

*The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City, and the Child & Family Policy Center in Des Moines.

Leveling the playing field

The more small-business owners understand how big businesses compete unfairly and do not contribute their fair share of state taxes, the more pressure can build for real reform.

Small business owners get it: They follow the rules, but preferential treatment for giant companies puts them at a disadvantage.

Case in point: Lora Fraracci, who had an excellent guest opinion in today’s Cedar Rapids Gazette about practices big companies use to avoid paying U.S. taxes. The problem is not exclusively an issue with the lax U.S. tax code. It is a big problem at the state level as well.

Ms. Fraracci runs a residential and commercial cleaning business. As she noted:

“As a small-business owner in Des Moines, I play by the rules and pay my taxes to support our American economy. I create jobs that will continue to support our local economy. When the playing field is so uneven it makes it hard to realize this dream.”

The issue has been receiving some national attention, but many may not realize the prevalence of this problem and its extension to state taxes. While Ms. Fraracci and other small businesses, or Iowa focused businesses, follow the rules, large companies they may serve can find a way to either (1) avoid the rules, or (2) block stronger rules.

The Iowa Fiscal Partnership has written about these issues for some time, and the reports are on our website.

The biggest Iowa breaks come in two ways: tax loopholes and tax credits.

Tax loopholes have been estimated to cost the state between $60 million and $100 million a year. Loosely written law is an invitation to big companies’ lawyers and accountants to find ways to lower their firms’ taxes. Multistate firms can shift profits to tax-haven states and avoid taxes they otherwise would be paying in Iowa. That creates the uneven playing field Ms. Fraracci sees.

Iowa could fix this by adopting something called “combined reporting,” which the business lobby has fought tooth and nail when proposed in the past by Governors Tom Vilsack and Chet Culver. Many states — including almost all our neighbors (Illinois, Wisconsin, Minnesota, Kansas and Nebraska) — already do this. See our 2007 report, which remains relevant because Iowa has refused to act.

Tax credits are particularly costly, rarely reviewed with any sense that they will be reformed. This is illustrated best with the Research Activities Credit, which provides a refundable credit to big companies to do something they are likely to anyway: research to keep their businesses relevant and competitive.

In 2013, that credit cost $53 million, with $36 million of that going to companies that paid no state income tax in Iowa. The default position must be that this is wasted money, because it is never reviewed in the regular budget process the way other spending is examined every year — on schools, law enforcement, worker protection and environmental quality. In Iowa, spending on tax credits is spending on autopilot.

Read here about Iowa’s accountability gap on tax-credit spending.

Looking ahead, as a new legislative session approaches and we hear repeatedly that things are tight, keep these points in mind to better understand the real fiscal picture facing Iowa. The more small-business owners understand this, the more likely pressure can build for real reform.

Owen-2013-57  Posted by Mike Owen, Executive Director, Iowa Policy Project