Mission accomplished — no cuts needed

What if Iowa promoted our low business taxes, rather than run us down?

Tax-cutters are in hog heaven in Iowa these days. They soon assume the levers of power at the State Capitol and they are planning to use them — no matter the consequences.

But if they truly believed their own mantra about the economic glories of low taxes, they would be shouting “Mission Accomplished” from the top of the Capitol dome. For all their talk of making Iowa “competitive,” they would realize we are already there, and have been for many, many years.

Once again, the national accounting firm Ernst & Young has examined the range of state and local taxes affecting businesses in every state plus Washington, D.C., and found Iowa is in the same place it always lands — the middle of the pack.

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Twenty-three states and D.C. tax business more heavily than Iowa, which is tied for 25th with six other states including neighboring Minnesota. Even South Dakota, despite a low-tax image trumpeted by western Iowa politicians, is slightly higher than Iowa.

That is because responsible tax policy demands a comprehensive look at the impact of all pieces of the tax structure, as Ernst & Young does. Cherry picking only one tax that appears high — appears being the key word because this can be complex — ignores other offsets in the tax code.

Yet, the post-election rhetoric has been a lot about tax cuts — tax cuts we cannot afford.

To the extent state and local taxes matter in business decisions — and there is considerable evidence that they do not, despite the political spin — Iowa already is well-situated. In other words, the concept of “competitiveness” can be overstated easily. A tax structure would have to be markedly different from others, producing high-tax results that we certainly don’t see in Iowa, to make a difference in business expansion and location decisions.

As we pointed out in 2014, Iowa is a low-tax state. This remains so. Why aren’t our elected officials promoting that if it is so important to them?

Having already implemented what the Governor promoted as the largest tax cut in Iowa history with massive property tax giveaways benefiting big-box retailers in 2013, and recognizing state revenues are coming in more slowly than expected, our leaders need to take a deep breath.

We cannot afford new tax cuts for business. For stronger economic growth, let’s turn the page and look at things that matter.

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

Spin and ideology are no substitute for good policy

The tax-cutters have a big microphone now but amplified volume does not substitute for good content.

Basic RGBBrace yourselves for public policy backed by nothing but spin and ideology in Iowa. A good example: tax policy.

Senator Bill Dix, who will be the new majority leader in the Iowa Senate with a comfortable nine or potentially 10-vote edge, offers a strident approach for the coming legislative session in this story by veteran Statehouse reporter Rod Boshart:

“The states that are growing the fastest today are the ones that have recognized that economic policy and tax policy makes a big difference,” he said. “High income tax punishes people who want to work, save and make investments in our state. We need to recognize that. States that have grown the fastest the last couple of decades across our country today are the ones that have either lowered their rates, broadened their base and kept things simple or moved to no income tax at all.”

The tax cutters have a big microphone now but amplified volume does not substitute for good content. Research is clear. So are the facts, and Senator Dix is missing them.

On IPP’s GradingStates.org website, Peter Fisher sorts out the fact from fiction with so-called “business climate” rankings that are certifiably unreliable. But they get a lot of attention from legislators who want something to back their ideological approach to policy.

Senator Dix is one of three Iowa state chairs for the American Legislative Exchange Council, or ALEC, which peddles much of the nonsense about tax cuts promoting economic growth.

Notes Fisher about the ALEC analysis, “when we can compare states ranked the best by ALEC with states ranked the worst, it turns out that ALEC’s 20 ‘best’ states have lower per capita income, lower median family income, and a lower median annual wage than the 20 ‘worst’ states. ALEC’s ‘best’ states also have higher poverty rates: 15.4 percent on average from 2007 through 2014, vs. 13.8 percent in the ‘worst’ states. The states favored by ALEC include the likes of Utah, North Dakota, and North Carolina, whereas ALEC’s ‘worst’ states include New York, California, and Vermont.”

Even if the prescriptions for lower taxes, etc. were right, they would not apply in Iowa. Our state has repeatedly been shown to be average or below average by any measure on taxes paid. In fact, few states can get below Iowa on corporate taxes, something the business lobby will not admit. So we start the legislative session with competitiveness not an issue for Iowa except in the minds of well-placed lobbyists and certain legislators.

And another angle not on their agenda: accountability on the large number of tax breaks already in Iowa law — something the Cedar Rapids Gazette noted today in an excellent editorial:

Over the years, lawmakers from both parties have given away tax exemptions, deductions and credits to an array of special interests lobbying for a break. Individually, the cuts look small. Added together, they have a significant budgetary impact.

They’re sold as an economic boost, but there’s rarely any follow up to find out if the tax cuts actually delivered on those promises.

And the real path to growth — the path lined with investments in human capital and public infrastructure? We’ll see how many of those demonstrated, positive approaches to prosperity even get a hearing in 2017.

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

Contact: mikeowen@iowapolicyproject.org

Recruiting minimum-wage jobs?

These folks really need to get their stories straight. Do they want to recruit low-wage employers?

For some time, we’ve seen Iowa House Speaker Linda Upmeyer defend inaction on a state minimum wage increase with the excuse that they’re focused on better paying jobs.

Now, many lawmakers and the business promotion groups of the Iowa Chamber Alliance are zeroed in on making sure no county or city officials should act locally to correct an indefensibly low state minimum wage of $7.25.

These folks really need to get their stories straight. It appears their real interest may be in recruiting low-wage employers.

In Saturday’s Cedar Rapids Gazette, Cedar Rapids Metro Economic Alliance policy strategist Barbra Solberg says “it’s hard for recruiting purposes to tell a company that we have 65 different minimum wages throughout the state.”

Well, which is it? Are we focused on high-paying or at least living-wage jobs, or are we actively recruiting companies that will pay the minimum wage? And how much is the Alliance hoping to give away to those companies with the “full funding” it wants for tax breaks? How much will Iowans pay for low-wage jobs?

While we’re at it, what is this nonsense about “65 different” minimums?

Four counties — not 65 — have embraced the demands of leadership and acted to raise local minimums, phasing in increases to between $10.10 and $10.75 from Iowa’s 9-year-old minimum wage of $7.25.

The Alliance does not even suggest an increase — only keeping it the same statewide “regardless of what it would be,” Solberg says. While the wage has remained stagnant, business tax credits have roughly tripled over that time.

Iowa needs a more responsible statewide wage, but local wage markets can easily justify setting that higher — as elected officials in four counties have determined is necessary to promote their local prosperity.

If uniformity is such a concern, is the Quad Cities Chamber pushing for the state of Iowa to raise the wage to Illinois’ level — $8.25 — or to Nebraska’s $9, since a statewide uniform wage is the Iowa chambers’ goal? Or are the Iowa chambers just happy to compete for the lowest wage jobs and to let Illinois and Nebraska and South Dakota ($8.55) and Minnesota ($9.50) get the better paying ones?

For an illustration of real-world ingredients of prosperity, see the analysis here by Peter Fisher of the Iowa Policy Project: http://www.gradingstates.org/the-real-path-to-state-prosperity/

A smart, high-road approach would start there, and get Iowa off the race to the bottom. Our track is already paved with excessive, costly and unaccountable tax breaks, weak services and increased poverty. We don’t need more of any of that.
owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project
Contact: mikeowen@iowapolicyproject.org

 

 

‘Nothing to see here, folks,’ 2017 edition

What really drives state growth is the rate of new business formation. And what matters most for entrepreneurial vibrancy is the education level of the state’s residents.

slide_taxfoundation-cropBasic flaws remain in Tax Foundation business index

The Tax Foundation released the 14th edition of its State Business Tax Climate Index (SBTCI) today (Sept. 28). The basic flaws that have rendered it of little use as a guide to state economic policy remain. While a few methodological tweaks have been made, it is still a hodge-podge of over 100 different features of state tax law, mashed together into an index number. The components are weighted illogically, and the result is a ranking that bears little or no relation to the taxes businesses actually pay in one state versus another.

The Tax Foundation acknowledges that they are not measuring actual tax levels on business, but rather the states’ tax structure. But they provide no evidence that tax structure influences business decisions. If you were a business, what would you care more about: the bottom line amount you will pay, or whether there were three tax brackets or five tax brackets involved in the calculation that got you there? The Tax Foundation would have you count brackets, and ignore the dollars.

The SBTCI has separate components for the corporate income tax, the individual income tax, property taxes, etc. So let’s consider the corporate tax component. Even as a measure of “structure” somehow, it falls short because it leaves out two major determinants of corporate income tax liabilities — federal deductibility and the apportionment rule — while including numerous minor features. As a result, the corporate tax index is a meaningless number.

Furthermore, the corporate income tax is much less important than the property tax, for most businesses. According to the Council on State Taxation, the property tax accounted for 43 percent of all business taxes, the corporate income tax just 11 percent, in 2014. Yet in coming up with the overall state rankings, the latest Tax Foundation index weights the property tax 14.9 percent, the corporate income tax 19.7 percent. That makes states with high property taxes and low corporate income taxes look much better on the index than they really are, and penalizes the states with a robust corporate income tax, a high state share of education funding, and low property taxes.

To make matters worse, the index weights change every year. This makes it impossible to know if a change in a state’s rank from one year to the next is due to a change in tax law, or just a change in the weights.

More importantly, the whole focus on business tax competitiveness is misplaced. State and local taxes are a very small share of overall business costs. What really drives state growth is the rate of new business formation. And what matters most for entrepreneurial vibrancy is the education level of the state’s residents.

2010-PFw5464Editor’s Note: Peter Fisher, research director of the nonpartisan Iowa Policy Project (IPP), wrote this blog for GradingStates.org, IPP’s separate website devoted to promoting a better understanding of various state business climate rankings. For a look at components of state policies that can promote prosperity, see this page on the GradingStates.org site.

Wrong again: ALEC can’t pick its own ‘winners’ among states

The 20 states that performed best on the four measures of income actually score much worse on ALEC’s ranking than the 20 states with the lowest income.

ALEC — the American Legislative Exchange Council — persists in peddling “research” that knocks down its own policy ideas.

In its latest edition of Rich States, Poor States, just released, ALEC’s Economic Outlook Ranking scores states on 15 measures reflecting ALEC’s preferred policies towards business. Our Grading the States analysis has exposed the flawed methodology of ALEC’s report, but the authors have not changed it for the 9th edition.

ALEC’s dilemma: The index purports to predict which state economies will perform the best, but in fact there is no relation between a state’s score and how well the economy grows subsequently.

Since the first edition in 2007, it remains the case that ALEC’s “best” states — the ones with the highest rankings — are actually poorer on several measures than the supposedly “worst” states. The graph below has been updated to reflect the 9th edition rankings and the latest income data.

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The 20 states that performed best on the four measures of income (the actual rich states) actually score much worse on ALEC’s ranking than the 20 states with the lowest income (the actual poor states).

In its fervent anti-government bias, the report offers a package of policies — for fiscal austerity, suppressing wages and imposing proportionately higher taxes on low-income people — with a promise of economic growth, when it really is a recipe for economic inequality, declining incomes for most citizens, and starving public infrastructure and education systems of needed revenue.

2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and developer of IPP’s Grading the States website, GradingStates.org.