Assuring opportunity for all Iowans

New Census data highlight the need for Iowa policymakers to ensure that all can fully contribute to Iowa’s economy

New Census data highlights a slight decline in Iowa’s overall poverty rate, though not all racial groups benefited from this advance. Stagnating household incomes and poverty rates among working Iowa families of color over the past 10 years mean that economic gains aren’t broadly shared among racial groups in Iowa.[i]

180915-MedianIncome_Race_IA

Ways that the Iowa Legislature could strengthen economic security for families of color include:

  • expanding the Earned Income Tax Credit (EITC);
  • ensuring that high-income Iowans and corporations pay their fair share of taxes;
  • raising the minimum wage; and
  • investing in preschool and K-12 education.[ii]

In recent days, the U.S. Census Bureau released new 2017 data covering poverty, income, and health insurance coverage.

Iowa showed a slight decrease in family and child poverty rates and an increase in household incomes. The outdated poverty guidelines fail to capture what it really takes to get by in Iowa.[iii] Our Cost of Living in Iowa research builds basic needs budgets for multiple family types across Iowa. Our 2018 analysis found that 30 percent of black working households and 28 percent of Latino households were unable to meet basic needs. This compares to 16 percent of white households.[iv]

The median household income for black Iowa families was about half of white family household incomes in 2017. White households are the only group who saw a statistically significant increase in household income over the past 10 years. Poverty rates declined for white and Latino Iowans between 2016 and 2017. However, poverty rates for black, Asian, Pacific Islander, and Native American Iowans have remained the same.[v]

Communities of color in Iowa continue to face barriers to economic prosperity. These include structural factors such as hiring discrimination and a lack access to quality jobs, great schools, and convenient transportation. Latino and Black families are disproportionately low-income. Further, they pay a larger portion of their income in sales and property taxes relative to more affluent Iowans.[vi]

Moving to a less regressive statewide tax system for families while closing corporate tax loopholes to assure stronger investments for all Iowans would work to dismantle some of the barriers to economic success for all Iowans and particularly families of color, who the latest data show are disproportionately impacted.

Expanding the EITC and raising the minimum wage would contribute to more broadly shared prosperity, as would restoring Iowa’s traditional commitment to education. Education funding in Iowa has lagged in K-12 and opportunities to advance in college are threatened by state cuts in support. Iowans and their leaders should be looking to solutions that improve equity and opportunity for a new generation of Iowans.[vii]

[i] U.S. Census Bureau, “Poverty Status in the Past 12 Months.” September 2018. American Community Survey 1-year estimates. factfinder.census.gov/

[ii] Erica Williams, “States Should Adopt Policies to Help Dismantle Racial Barriers to Broader Prosperity.” September 2018. The Center on Budget and Policy Priorities. https://www.cbpp.org/blog/states-should-adopt-policies-to-help-dismantle-racial-barriers-to-broader-prosperity

[iii] Ibid.

[iv] Peter Fisher and Natalie Veldhouse, “The Cost of Living in Iowa 2018 Edition Part 2: Many Iowa Households Struggle to Meet Basic Needs.” July 2018. Iowa Policy Project. http://iowapolicyproject.org/2018docs/180702-COL2018-Part2.pdf

[v] Ibid.

[vi] Ibid.

[vii] Ibid.

2018-NV-6w_3497(1)Natalie Veldhouse is a research associate at the nonpartisan Iowa Policy Project. nveldhouse@iowapolicyproject.org

SNAP changes: Ignoring what works

EITC and child care more effective than drug tests and work requirements

Work requirements for public assistance seem to be all the rage — at both the national and state levels — when other policies would do more to encourage and support work.

President Trump signed an executive order April 10 enhancing enforcement of federal public assistance work requirement laws, evaluation of program effectiveness, and consolidation or elimination of “ineffective” programs.[1] The Trump administration also is considering drug tests for SNAP (Food Stamp) recipients.[2]

Similar legislation in Iowa (Senate File 2370) intended to expand regulations on and further monitor recipients of public assistance in Iowa, but appears to have stalled as the 2018 session nears an end. This included implementing work requirements, drug testing, quarterly reviews of eligibility, and a one-year residency requirement.[3]

The Farm Bill draft[4] released April 12 would reduce or eliminate SNAP benefits for 1 million households, or 2 million recipients, according to the Center on Budget and Policy Priorities (CBPP). Work requirements would force able-bodied adults without dependents to prove every month that they work or participate in a training program 20 hours per week. Severe sanctions for noncompliance would cut off benefits for one year the first time — three years the second.[5]

Recent research found recipients under work requirements for Temporary Assistance to Needy Families (TANF) continued to live below the federal poverty level, and that small increases in employment diminished over time and did not result in stable employment in most cases.[6] In the long term, programs that provide training, skill building, and educational opportunities to recipients are shown to be more successful than only implementing work requirements.[7]

Evidence shows that people in SNAP households who can work do work. More than 80 percent work during the year before or after receiving benefits.[8]

Drug testing public assistance recipients has proven to be costly and frivolous. States that have implemented drug testing found that applicants have lower drug usage rates than the general population. The state of Missouri spent $336,297 in 2015 to test 293 of 31,336 TANF applicants and found only 38 positive results.[9]

Eleven percent of Iowans received public assistance in February of 2018.[10] Already, able-bodied adult without dependents have work requirements to receive SNAP in the state of Iowa.[11]

By contrast, the Earned Income Tax Credit and Child Care Assistance (CCA) are policies that are effective in encouraging work. In addition, Iowa could make changes in work support programs, such as CCA,[12] to reduce what are known as “cliff effects” — when families with a pay raise or a new job are faced with a net loss because a reduction in benefits exceeds the new income.

Policies that support working families, not drug testing and work requirements, would do more to encourage work, raise family incomes, and boost local economies.

 

[1] The White House, “Executive Order Reducing Poverty in America by Promoting Opportunity and Economic Mobility.” April 2018. https://www.whitehouse.gov/presidential-actions/executive-order-reducing-poverty-america-promoting-opportunity-economic-mobility/

[2] Associated Press, “Drug testing plan considered for some food stamp recipients.” April 2018. https://www.apnews.com/6f5adff5efeb4f9a9075f76bf9cf5572

[3] IA Legis, “Senate File 2370” February 2018. https://www.legis.iowa.gov/legislation/BillBook?ga=87&ba=SF2370

[4] House Agriculture Committee “H.R. 2: the Agriculture and Nutrition Act of 2018.” April 2018. 115th Congress. https://agriculture.house.gov/uploadedfiles/agriculture_and_nutrition_act_of_2018.pdf

[5] Center on Budget and Policy Priorities, “Chairman Conaway’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#_ftn1

[6] Urban Institute, “Work Requirements in Social Safety Net Programs.” December 2017. https://www.urban.org/sites/default/files/publication/95566/work-requirements-in-social-safety-net-programs.pdf

[7] Center on Budget and Policy Priorities, “Work Requirements Don’t Cut Poverty, Evidence Shows.” June 2016. https://www.cbpp.org/research/poverty-and-inequality/work-requirements-dont-cut-poverty-evidence-shows

[8] Center on Budget and Policy Priorities, “Making SNAP Work Requirements Harsher Will Not Improve Outcomes for Low-Income People.” March 2018. https://www.cbpp.org/research/food-assistance/making-snap-work-requirements-harsher-will-not-improve-outcomes-for-low

[9] Center on Law and Social Policy, “Drug Testing SNAP Applicants is Ineffective and Perpetuates Stereotypes.” July 2017. https://www.clasp.org/sites/default/files/publications/2017/08/Drug-testing-SNAP-Applicants-is-Ineffective-Perpetuates-Stereotypes.pdf

[10] Iowa Department of Human Services, “Food Assistance Report Series F-1.” March 2018. http://publications.iowa.gov/27299/1/FA-F1-2016%202018-03.pdf

[11] Iowa Department of Human Services, “ABAWD Letter.” September 2017. https://dhs.iowa.gov/sites/default/files/470-3967.pdf

[12] Peter S. Fisher and Lily French, Iowa Policy Project: Reducing Cliff Effects in Iowa Child Care Assistance, March 2014. https://www.iowapolicyproject.org/2014docs/140313-CCA-cliffs.pdf

 

2018-NV-6w_3497(1)Natalie Veldhouse is a research associate at the nonpartisan Iowa Policy Project.

nveldhouse@iowapolicyproject.org

On Labor Day, don’t forget single workers

Hundreds of single workers — and millions nationally — are taxed into poverty because they do not have kids and do not qualify for the EITC. And problems with child care assistance are being used to oppose a minimum-wage increase, even though the vast majority of affected workers do not have children. On Labor Day, let’s not forget the needs of single workers.

Our focus at the Iowa Policy Project frequently emphasizes the impact of public policy on working families.

But the demand of meeting a household budget is faced by more than parents, whether in single- or married-couple families. Single workers without children also need to get by.

So, on Labor Day weekend, let’s make sure the spotlight hits those folks as well. Here are three areas:

•    the Earned Income Tax Credit (EITC);
•    the Cost of Living in Iowa; and
•    the minimum wage.

EITC
chuck_marr-5464A new report from the Center on Budget and Policy Priorities (CBPP) focuses on single working people who do not raise children and thus do not benefit from the Earned Income Tax Credit (EITC). Childless workers under age 25 are ineligible for that benefit, notes CBPP’s Chuck Marr, who states:

On Labor Day, many of these low-wage workers will be serving meals in restaurants, ringing up back-to-school supplies at the mall, or driving a truck down the highway. They deserve a decent day’s pay for a hard day’s work, but many of their paychecks are too small to make ends meet. An expanded EITC that targets this group would do more to help deliver a decent day’s pay.

There are bipartisan proposals on the table in Washington to extend the EITC to these workers, 7.5 million of whom are now “taxed into poverty,” Marr notes. The table below shows the Iowa impacts of these proposals.

Iowa Workers helped under Obama, Ryan plans Workers helped under Brown, Neal plans
Cooks  6,000  6,000
Cashiers  5,000  6,000
Waiters and waitresses  5,000  5,000
Retail salespersons  4,000  5,000
Custodians and building cleaners  4,000  4,000
Laborers and freight, stock, and material movers  4,000  4,000
Truck drivers  4,000  4,000
Nursing, psychiatric, and home health aides  3,000  4,000
Maids and housekeeping cleaners  3,000  3,000
Stock clerks and order fillers  2,000  3,000
Child care workers  2,000  2,000
Construction laborers  2,000  2,000
Food preparation workers  2,000  2,000
Grounds maintenance workers  2,000  2,000
Personal and home care aides  2,000  2,000

Source: Chuck Marr blog, Center on Budget and Policy Priorities

CBPP has done much work on this issue. See this earlier report and another report by Marr and his colleagues at CBPP.

Cost of Living in Iowa
2010-PFw5464As IPP’s Peter Fisher shows in Part 2 of our “Cost of Living in Iowa” report for 2016, more than a quarter of working single persons statewide (27.5 percent) do not make enough at work to meet a basic-needs household budget. In fact, for those workers who fall short, they fall more than $10,000 short, on average. It is worth noting that this basic needs gap is even more severe for single parents, who fall almost $23,000 short, on average.

Minimum Wage
One of the efforts being used to stop or hold down local minimum wage increases in Iowa is the issue of “cliff effects” in work support programs — particularly Child Care Assistance — in which benefits abruptly drop for a worker if he/she gets slightly higher pay.

This is a very real issue for some workers, but not for the vast majority of workers who would benefit from a minimum wage increase statewide to $12 (phased in over five years), because they do not have children.

It makes no sense to block a wage increase for the three-fourths or more of workers who are not affected by the child care issue.

Rather, Iowa could raise the minimum wage and, separately, improve access to its Child Care Assistance program so that the cliff effects are eased or erased. There are ways to do so. See Fisher’s report with Lily French from 2014, Reducing Cliff Effects in Iowa Child Care Assistance.

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

mikeowen@iowapolicyproject.org

EITC boost would help families who need it — and economy

An EITC increase would raise the threshold at which Iowa families start to owe income taxes — putting more money into the pockets of those who need it the most and encouraging them to spend that money in their local communities.

Heather Gibney, Research Associate
Heather Gibney

If you imagine a packed Kinnick Stadium on game day you have an idea of how many Iowans were kept out of poverty from 2009 to 2011 thanks to two refundable tax credits.

A new state-by-state analysis from the Brookings Institution finds that the federal Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) kept 71,123 Iowans out of poverty, over half of them children.

The Governor’s Condition of the State speech Tuesday missed an opportunity to discuss the value of Iowa’s own Earned Income Tax Credit (EITC) to Iowa families and prospects for an expansion — something he has twice vetoed on grounds that he wanted more comprehensive tax reforms.

The Brookings analysis uses a new way of looking at poverty: the Supplemental Poverty Measure, an updated approach to the calculation of whether an Americans household is in poverty. So it’s a valuable look that we haven’t seen for state-level figures.

The EITC is designed to encourage work when low-income jobs don’t provide enough for a family to make ends meet. So, as a family earns more income, they become eligible for a larger credit; as their income approaches self-sufficiency the EITC gradually phases out.[1]

At the state level, Iowa families who are eligible for the federal EITC also qualify for the state EITC, which is set at 7 percent of the federal credit. Proposals in the past would take that higher, to 10 percent or even 20 percent. It can be an important break for lower-income working families because Iowa already taxes the income of many who don’t earn enough to pay federal income tax. Currently, a married couple with two incomes and two children who qualifies for the federal EITC doesn’t have to start paying federal income taxes until their incomes reach $45,400. That same family would have to pay Iowa income taxes when their incomes reached $22,600.[2]

The EITC is the the nation’s largest and most successful anti-poverty program, largely because it encourages and rewards working families. With Iowa’s 85th General Assembly under way, discussions about raising Iowa’s EITC above 7 percent may once again emerge after lawmakers failed to reach an agreement last year.

An EITC increase would raise the threshold at which Iowa families start to owe income taxes — putting more money into the pockets of those who need it the most and encouraging them to spend that money in their local communities.

Posted by Heather Gibney, Research Associate

Better understanding the 47 percent

Make no mistake: Working Iowans pay taxes.

Heather Gibney, Research Associate
Heather Gibney

The current political environment has set off a firestorm of confusion about who does and who does not pay taxes in America — and unfair criticism of many working families and others.

It’s true that 47 percent of Americans pay no federal income taxes, but they do pay taxes. In fact, almost two-thirds of the 47 percent are low-income, working households who are paying payroll taxes to help finance Social Security and Medicare, and many pay federal excise taxes on things like gasoline, alcohol and cigarettes.[1] These households are also paying a large percentage of their income in state and local sales and property taxes.

Many working Americans are exempt from the income tax because of features Congress added to the tax code — with overwhelming bipartisan support, in an effort to enable people to care for themselves and their children while encouraging them to work. Some of these features include the Earned Income Tax Credit, a Ronald Reagan era anti-poverty program that enables low-wage working families with children to meet their basic needs while promoting employment. In addition, the child tax credit gives families a tax credit through the form of a refund check even when they don’t owe federal income taxes.[2]

The other one-third of the 47 percent — those households that aren’t paying either major federal tax — includes those who are unemployed, low-income senior citizens who paid taxes during their working years and aren’t currently taxed on Social Security benefits, students, those who have disabilities or can’t work due to serious injury and people who don’t meet the income tax obligation because their wages aren’t high enough.

Often missed in the focus on those who are not currently paying income taxes is the errant assumption that all those people have never paid taxes and never will. Just because a household doesn’t owe income tax one year, doesn’t mean they won’t pay income taxes over their lifetime. For many, a career change, the loss of a job, a disability or injury, or low wages can lead to incomes too low to pay taxes.

Iowa households who aren’t paying federal income tax are still paying a large percentage of their incomes to state and local taxes. As the Iowa Policy Project reported in (2009), moderate-and low-income Iowans pay more of their income in state and local taxes than the rich do. [3] [4]

whopays2009As the graph at right shows, Iowa’s regressive tax system takes a larger share of the incomes from those who have the least, and a smaller share from those who have the ability to pay a larger percentage of their income. Make no mistake: Working Iowans pay taxes.

For more on this issue, see our two-pager, “Better understanding the 47 percent.”

House vote: Thumbs up or thumbs down for 86,000 Iowa families?

Simply put, the House bill would undo the good work of 2009; the Senate bill would keep it, on behalf of working families and the economy.

Mike Owen
Mike Owen

Iowans would stand to lose much under a proposal this week in the U.S. House of Representatives. Citizens for Tax Justice offered a striking analysis last week highlighting the impact of the 2009 improvements in the refundable tax credits for low-income working families in Iowa.

Simply put, the House proposal would undo the good work of 2009 and increase tax inequities, while a Senate-passed bill would keep the good stuff.

One of the 2009 improvements is an expansion of the Earned Income Tax Credit (EITC), an issue we have covered extensively at IPP and the Iowa Fiscal Partnership.

Any attempts to weaken the EITC at either the state or federal level will harm low- to moderate-income working families in our state. More than 1 out of every 7 federal tax filers in Iowa claims the EITC (about 15 percent). But under H.R. 8, the tax proposal being offered by the House leadership, the EITC improvements from 2009 would be lost.

H.R. 8 also would fail to extend the improvements made in the Child Tax Credit (CTC) in 2009, and in the American Opportunity Tax Credit for higher education expenses.

It is impossible to find balance in the approach of H.R. 8, which would end these provisions above for 13 million working families with 26 million children, while extending tax cuts for 2.7 million high-income earners.

The state numbers from CTJ (full report available here):

  • 86,321 Iowa families with 190,553 kids would lose $62.5 million ($724 per family), if 2009 rules on EITC and the Per-Child Tax Credit are not extended;
  • 17,503 Iowa families with 28,179 kids would lose $32 million if the Per-Child Tax Credit earnings threshold does not remain at $3,000, compared to $13,300 as proposed by H.R. 8.
  • 59,159 Iowa families with 139,806 kids would lose $30.5 million if the two 2009 expansions of the EITC — larger credit for families with three or more children, and reducing the so-called “marriage penalty” — are not extended in 2013.

These “Making Work Pay” provisions of the tax code are almost exclusively of help to working families earning $50,000 or less at a time of stagnant wages and a difficult job market in which the Iowa economy is shifting toward lower-wage jobs.

To address our nation’s serious deficit and debt issues, a balanced approach should do nothing to increase poverty or income inequality. The Senate bill passed last week would keep the EITC and CTC improvements from 2009, and follows that principle. The bill that has emerged in the House does not.

Posted by Mike Owen, Assistant Director

Iowa Senate to families: Happy Valentine’s Day!

The increase would put Iowa into the top tier among the 22 states and the District of Columbia that offer an EITC.

Lily French
Lily French
EITC graphic
The Iowa Senate voted 48-0 on Feb. 14 to approve a significant increase in Iowa's Earned Income Tax Credit.

Today, the Iowa Senate sent a Valentine to thousands of working Iowa families, voting unanimously to approve an increase in Iowa’s Earned Income Tax Credit (EITC).

Whether the Valentine is ultimately delivered depends on the Iowa House and Governor Terry Branstad, who twice vetoed a smaller increase last year.

The Senate-passed bill would boost Iowa’s EITC, which is refundable, from 7 percent of the federal credit, to 13 percent for this year, then to 15 percent in 2013 and to 20 percent in 2014. The initial boost, to 13 percent, is expected to cost about $26 million in 2013 and $23 million each of the next three years.

No information was immediately available on the cost of moving to 15 percent and 20 percent. For comparison purposes, however, it is useful to note that Iowa gave corporations that pay no state income taxes nearly $45 million in checks last year.

In the case of those corporate subsidies, through the Research Activities Credit, there is little or no evidence of a direct benefit to Iowa’s economy nor a demonstrated need for the subsidy. The EITC, on the other hand, is shown in study after study to produce economic benefits for both local communities and working families who struggle to make ends meet in low- and moderate-wage jobs.

The increase would move Iowa from one of the lowest EITCs into the top tier among the 22 states and the District of Columbia that currently offer an EITC. Only seven states and the District of Columbia have higher credits under current law than the proposed 20 percent for Iowa. This table in a recent report by the Iowa Department of Revenue illustrates what various states offer for an EITC.

Posted by Lily French, Outreach Coordinator