Crunching those year-end Iowa jobs numbers

We need all the numbers to best view Iowa’s job picture.

Christine Ralston
Christine Ralston

Iowa’s latest jobs picture is a bit mixed up. Iowa’s unemployment rate was at 6.6 percent in December, remaining relatively stable through the second half of 2009. But the job numbers themselves dropped dramatically, shedding 13,200 in December alone for the largest one-month drop in more than a decade.

Though this month’s job losses were staggering in their rate of change, the whole year gives a better picture.

Iowa began 2009 with a seasonally adjusted unemployment rate of 4.4 percent, and jumped quickly – to 4.8 percent in the first month, and to 6.2 percent by June and 6.5 percent in July. The rate has stayed at or above that level ever since.

It’s important to understand that the unemployment rate alone doesn’t tell the whole story of those without work.

The unemployment rate:

  • does not include those who are working less than full time but would prefer full-time employment.
  • does not include those workers who have given up and dropped out of the job search; and
  • does not necessarily reflect job trends. In other words, the unemployment rate can go up at the same time we’re adding jobs — or vice-versa.

So what gives? First it helps to know the monthly numbers reflect two surveys that measure different things.

A U.S. Census survey of households determines the unemployment rate. When a person is unemployed he or she must be 1) jobless, 2) looking for a job, and 3) available for work.[1] In other words, not every person without a job is considered unemployed.

People meeting that definition as “unemployed,” along with those who are employed, constitute the labor force. The unemployment rate is the percentage of the labor force that is unemployed.

It’s not perfect: Someone who has lost his/her job and has quit trying to find a job at a given point in time is no longer counted as unemployed, and therefore is not reflected in the unemployment rate. And someone who lost a job with health-care and retirement benefits may now be working independently — at lower pay and without benefits — but is counted as employed. That person is employed, but is really underemployed.

So the unemployment rate does not necessarily measure job quality or the ability of the economy to meet the demand for jobs.

The monthly nonfarm job numbers, on the other hand, come from a payroll survey of employers. It does not count workers; rather, it counts jobs, which is a more transparent way to know what jobs employers are making available.

The nonfarm job number, too, is not perfect. In fact, one person with two jobs is counted twice. And it doesn’t tell whether the jobs are full- or part-time jobs. But it’s a pretty good measure, because it shows changes in the number of jobs the economy is supporting, month to month and year to year.

Monthly nonfarm jobs 2009Rather than focusing too heavily on one-month changes, we can see that during all of 2009, nonfarm payrolls fell by 40,100 jobs, or an average of 3,300 per month. In 2001, the year of the last recession before the 2009 recession, the average job loss was 2,100 a month.

A few key points from the nonfarm jobs numbers, which show changes by sector for the year:

  • Nearly half of the net nonfarm job losses for the year were in manufacturing — 19,900.
  • We had losses of 7,900 jobs in trade, transportation and utilities; 7,700 in construction; and 4,500 in leisure and hospitality.
  • Only three sectors showed a net gain: education and health services, 2,600; professional and business services, 1,200; and financial activities, 900.

The economy leaves Iowa with a lot of room for improvement. Employment is often one of the last areas to show signs of recovery, so it is going to take some time to see big positive changes. It is also a reminder that we need all the numbers to best view the state’s employment picture.


[1] Bureau of Labor Statistics. http://www.bls.gov/cps/cps_htgm.htm#concepts.

Posted by Christine Ralston, Research Associate

More transparency on biz handouts — eventually

Think opening the books on public business doesn’t bother corporations? Think again.

While transparency is good, and will result from a new law passed last year, lawmakers made a mistake in not having the new legislation take effect immediately.

Effect of transparency law
Research credit claims spike just ahead of disclosure law effective date

Lawmakers ordered annual public disclosure of recipients of the Research Activities Credit with claims exceeding $500,000.

Instead of an immediate effective date, the law carried a July 1 effective date. That gave companies two months to get their claims filed before the information gathering would begin — a temporary window to avoid disclosure. Some jumped through that loophole, to the tune of an estimated $25 million.

The Iowa Department of Revenue reported on this in its December Contingent Liabilities report for the Revenue Estimating Conference. After estimating RAC claims for FY2009 at $45.5 million and $46.1 million in August and October reports, that number spiked to $70.8 million in the December report.

The DOR report itself attributed the spike in the estimate to the new transparency law:

There was also a dramatic increase in the amount of Research Activities Tax Credit claims in FY 2009. The majority of the increase in FY 2009 claims is a result of corporations filing claims early, before the July 1, 2010, effective date for a new disclosure requirement for Research Activities Tax Credit claims exceeding $500,000. As a result the estimate for FY 2010 was lowered to account for those claims moving forward a fiscal year. (emphasis added)

The graph above shows where the steady upward trend in RAC claims broke sharply with passage of the disclosure law, claims spiking just ahead of the law taking effect, and the projected one-year reduction before the trend returns.

Think opening the books on public business doesn’t bother corporations? Think again. When public business is tied too closely to private business, as we see with the RAC, taxpayer accountability suffers.

Posted by Mike Owen, Assistant Director

Watching your quarters — transparent state finances

Companies receive secret checks. That’s business as usual in Iowa, where corporate giveaways are out of control.

Getting a handle on where corporate subsidies go can be slippery business.

When you put your money in, do you see where it goes?

It’s an important question for taxpayers, and it’s one the Iowa General Assembly may address further this spring.

The so-called “Research Activities Credit,” or RAC, has become an annual drain on the state Treasury of $30-40 million and is projected to reach past $60 million in a few years. But the biggest cost is not simply tax revenues lost to a credit against taxes owed. The biggest cost of the RAC is in its poorly named “refund” program. If a company can claim a credit larger than its taxes owed, it gets what’s called a “refund” — for taxes it never had to pay.

These “refunds” averaged about 92 percent of claims from 2000-05, and in 2005 averaged $3 million per recipient. That is money that never has to go through the regular budget process, scrutinized by legislative committees and weighed against the state’s priorities. If it were a grant, or a regular budget item, you would see where that money goes. But since it’s rewarded through the tax system, you don’t. The companies receive secret checks.

That’s business as usual in Iowa, where corporate giveaways are literally out of control.

Maybe this will start to change. A new law passed last year could be a critical first step toward transparency of subsidies to private corporations. Recipients of RAC claims above $500,000 will be named, with amounts received, in an upcoming report from the Department of Revenue.

You’ll be able to see where at least some of the money is going, and count your quarters — a half-million dollars at a time!

Posted by Mike Owen, Assistant Director

Beyond estate-tax scare tactics

“The multimillionaires and billionaires who walk among us have already been well cared-for, thank you, by many politicians who want to pretend they’re looking out for the dead.”

Peter Fisher
Peter Fisher

It is time to get past the scare tactics that have now become common any time Congress discusses the federal estate tax.

The multimillionaires and billionaires who walk among us have already been well cared-for, thank you, by many politicians who want to pretend they’re looking out for the dead.

The estate tax has steadily declined since 2001, with the top rate falling from 55 percent to 45 percent now, and exemptions rising from $1.3 million per couple in 2001 to $7 million this year. That means $7 million is tax-free. Not surpringly, only two-tenths of 1 percent of all estates are required to pay any federal tax at all on an inheritance.

This is not good enough for some, who push for repeal or so-called “compromises” that are tantamount to repeal. Meanwhile, our federal deficits are mounting and creating debt that will fall to the children of middle-income America, if not the grandchildren of dead billionaires.

As stated this week by Chuck Marr, federal tax policy director for the nonpartisan Center on Budget and Policy Priorities:

In the aftermath of Hurricane Katrina in 2005, Iowa Senator Charles Grassley stated that “it’s a little unseemly to be talking about doing away with or enhancing the estate tax at a time when people are suffering.” What the senator said remains true today: given the current economic crisis and the human anguish it has caused, it would be more than “a little unseemly” to shrink what remains of the estate tax.

The Institute on Taxation and Economic Policy has produced a good factual summary of how the estate tax affects people in every state. Here are some of the key numbers for Iowa:

IOWA
Number of Estates Owing Tax
: 2006 — 237; 2007 — 158; 2008 — 225
Percentage of Estates Owing Tax: 2006 — 0.9 Percent; 2007 — 0.6 Percent; 2008 — 0.8 Percent

Those estates that do pay tax represent windfalls to beneficiaries of vast fortunes, the contents of which in large measure were never taxed before.

Is it a greater priority to absolve those beneficiaries of the need to contribute to public services — and make everyone else in the United States borrow billions more from overseas to pay for it — or to establish reasonable rules once and for all to assure the very wealthiest in the nation pay taxes?

Do we pass on millions tax-free to the heirs of American aristocracy, or do we pass on billions or trillions of debt to America’s teen-agers?

How can these be difficult questions?

Posted by Peter S. Fisher, Research Director

When corporations write their own tax laws

As an IFP report noted, Iowa could put up signs: “Welcome, Multistate Corporations: Cheat on Your Taxes Here.”

Mike Owen
Mike Owen

Sunday’s New York Times asks a poignant question: What’s the record for shutting a loophole?

What caught the Times’ attention was about as brazen a move as we could expect from the shady-deal wings of corporate America: The tobacco industry, facing a 20-fold tax increase on roll-your-own cigarettes to help support the Children’s Health Insurance Program, just changed the label of a product to avoid the tax. Noted the Times:

Companies simply remarketed roll-your-own as “pipe tobacco,” which is taxed at one-tenth the rate and is not subject to any definitive distinction under the law. The result is that roll-your-own companies, while a small part of the cigarette industry, quintupled their output of pipe tobacco in just five months to 1.7 million pounds — enough to roll 42 million packs of cigarettes.

The evasion could cost the government more than $30 million a month in revenues, according to the Associated Press. But the potential cost to the public is far greater, since studies show higher cigarette taxes have proved to be an effective way to discourage children from smoking.

The new fear is that the gimmickry of rolling your own and using flavored (“pipe”) tobacco — now banned in packaged cigarettes — could prove irresistible for youngsters experimenting with life. And with death.

So, in one fell swoop, the industry effectively rewrote tax law on its own, without the help of Congress or the President, and not only defied the intent of Congress in finding a way to pay for better health for kids but found its own way to worsen kids’ health and drive up costs of health care.

There are lessons here for Iowa, not in terms of health policy so much as tax policy. Not that the Hawkeye State has ever been in any danger of setting records in the closing of tax loopholes. At this point, just shutting loopholes on the books for a generation would be nice, and beneficial to Iowa residents and small businesses.

For years, Iowa has allowed multistate corporations that do business here to effectively set their own tax rates. At the same time businesses complain about their income tax rate, most don’t pay it — because of legal but excessive tax breaks on the one hand and apparently legal shenanigans on the other, many businesses find ways to avoid taxes the law was designed to collect. As the cuts we’re seeing to critical public services attest, there is a cost to our generosity to big corporations.

As IPP’s Peter Fisher noted in the 2007 Iowa Fiscal Partnership report “Leveling the Playing Field,” we could just as easily put up signs at the borders: “Welcome, Multistate Corporations: Cheat on Your Taxes Here.”

By Mike Owen, Assistant Director

Why health reform matters — especially in rural Iowa

Iowa’s 1.2 million rural residents need increased access to affordable, quality health insurance

2009-AC
Andrew Cannon

On the eve of her marriage, Suzanne Castello, a Grinnell resident, looked forward to quitting her job at a community college and working the family farm with her husband full time.

Though Castello had enjoyed good health benefits at her off-farm job, her husband had been covered through an insurance plan purchased on the non-group, private market for a number of years, and they assumed that adding her to the plan would not be a problem.

Due to a previous miscarriage and a chronic jaw ailment, Castello was denied coverage. Around the same time, Castello and her husband learned that she was pregnant. The Castellos continued to search for an insurance plan that would cover her and had some luck, though the plans that would agree to cover her had a 10-month pre-existing condition exclusion — no insurer would cover the pregnancy.

Castello enrolled in COBRA — the federal legislation that allows workers to continue their job-based coverage for up to 18 months, COBRA enrollees must pay 102 percent of the premium cost.

“We were hemorrhaging money, but we didn’t qualify for Medicaid,” Castello said. “It really rankles me that we’re seeing something as fundamental as childbirth as kind of like, ‘Would you like dessert with that meal?’ There’s a double-standard between group policies and individual policies, which cover most farmers.”

Though the pregnancy was complication-free and Castello has enjoyed good health since then, finding affordable insurance is still a challenge for her.

“Right now, I have the flavor-aid version of an insurance policy – it’s high-deductible, high cost-sharing. It’s basically just coverage for catastrophic events, because the deductible is so high,” Castello said.

“It’s irksome that I’m a healthy person and I can’t get decent health insurance.”

———

Nearly 20 percent of America’s uninsured live in rural areas. Of those, if they do not have insurance through an employer-sponsored plan or public coverage, such as Medicaid, they have to buy a plan on the non-group market. This is especially expensive, as the costs are not spread across a larger group of employees and their families.

Nationally, only 8 percent of the population receives its insurance through the non-group market. In Iowa, up to 37 percent of rural residents get insurance this way, subjecting them to high premiums for less-regulated plans that can deny coverage for a pre-existing condition for up to 12 months.

Iowa’s 1.2 million rural residents need increased access to affordable, quality health insurance.

Posted by Andrew Cannon, Research Associate.

See Cannon’s IPP Snapshot: Health coverage in rural Iowa.

Workforce Education: Good investment for Iowa

No matter the indicator — unemployment rates, wages or poverty — it is undeniable that education pays for Iowans.

Lily French
Lily French

Investments in workforce education improve economic prospects for Iowa families, and in the process boost the state budget. We have found that investing in postsecondary education for low-income adults returns tax revenue more than double the state’s costs. In fact, the state can garner $3.70 in increased tax revenue for every dollar invested in an associate’s degree and $2.40 for every dollar invested in a bachelor’s degree for low-income adults. (See Education Pays in Iowa, Executive Summary; Full Report)

State investments in workforce education can also greatly improve the economic futures of Iowans struggling to support their families. No matter the indicator — unemployment rates, wages or poverty — it is undeniable that education pays for Iowans. In a state where wages are stagnating for less-educated workers, many Iowans were having a difficult time making ends meet even before the current recession began.

Further, a projected shortage of skilled labor combined with the rising cost to families for postsecondary education demands that Iowa invest in workforce education to address our state’s education gap. When low-income adults have access to increased education and training, their lifetime earnings increase substantially, generating tax revenue for the state that more than offsets the cost of investing in this access.

To garner the largest fiscal returns and set the state firmly on the path toward economic growth, Iowa should:

■ Expand financial aid to help low-income working adults pay for postsecondary education, by

  • creating a tuition scholarship program for low-income workers to pursue an associate or bachelor’s degree at one of Iowa’s public colleges;
  • fully funding Iowa Work-Study at its standing-limited appropriation of $2.75 million.

■ Promote education and training within Iowa’s TANF program, by

  • directing program administrators and case managers to promote education with Promise Job clients;
  • using American Recovery and Reinvestment Act (ARRA) TANF Emergency Contingency funds to support education and training for a greater number of TANF participants.

■ Modify Iowa’s WIA plan to enhance training provisions, by

  • setting local funds for training at minimum level required for eligibility to additional discretionary funds;
  • using discretionary funds to advance postsecondary educational opportunities.

Expanding access to education and training for low-wage workers is particularly important when economic prospects are dim. An investment in workforce skills would prepare Iowans for the future and contribute to rebuilding our economy.

Posted by Lily French, Research Associate/Outreach Coordinator

Excerpted from Lily’s written testimony to the Iowa legislative Job Training Needs Study Committee, Nov. 3, 2009. Also see the IPP backgrounder.