Despite Job Boost in January, Lower Numbers Than Thought

The new numbers present some reason for hope for job-seekers — but also show Iowa jobs are falling short of demand. An extension of unemployment benefits in this climate would be important, to help struggling families and the economy.

Christine Ralston
Christine Ralston

Iowa nonfarm jobs grew in January, but revised December numbers are far below previous estimates. Nonfarm, or payroll, jobs rose by 4,600 in January to 1,463,400. Though a clear gain, it shows the number of jobs for December was vastly overstated. The January number is 5,400 jobs below the level that had been previously estimated for December.

The unemployment rate showed a slight increase following annual government revisions of employment data, to 6.6 percent from 6.5 percent in December. That December number had previously been reported at 6.6 percent.

The new numbers are the best numbers available, and they do present some reason for hope in what has been a very difficult period for job-seekers.

Over the year, from January to January, we see pretty similar trends to what we’d seen earlier. Iowa lost nearly 40,000 jobs in one year (38,200), and over 40 percent of the loss (16,600) came in manufacturing. These are jobs that traditionally pay better than most and offer health benefits.

It’s always best not to get too swept up in the monthly numbers because they are subject to revision. It’s better to take a step back and view them over time.

What the numbers do illustrate, however, is that Iowa jobs are falling short of demand for work. This yet again emphasizes the need for an extension of unemployment insurance benefits by Congress — both to help families make ends meet when jobs aren’t available and to bolster the economy. Unemployment benefits are spent in local economies, and that helps to create jobs.

Posted by Christine Ralston, Research Associate

Lessons from Oregon

Like Oregon voters, Iowa voters favor a balanced approach to budget challenges.

Christine Ralston
Christine Ralston

Iowa could learn something from Oregon voters about taking a balanced approach to budget challenges.

In a victory for fiscal prudence, Oregon voters recently passed two initiatives — Measures 66 and 67 — that upheld their legislature’s decision to use a balanced approach to their budget shortfall.

In Oregon’s case, lawmakers last session made cuts to the budget and raised income tax for the top 3 percent of filers. They also raised the corporate minimum tax from $10 and increased the corporate income tax rate for businesses netting over $10 million a year, and temporarily for most other businesses. As the Legislature already voted last session to use a balanced approach that included trimming the budget and raising revenue, this vote saves Oregonians from further cuts in important services. This is notable for two reasons:

■     Oregon is known for its opposition to raising taxes, having last voted to raise taxes about 80 years ago when it added a state income tax.
•     It is one of five states that does not have a state sales tax.*
•     It also has a statewide cap on property tax.
•     It has a “kicker” law that automatically sends money back to residents when revenues exceed forecasts. Oregon has no rainy day fund.
■    Given the opportunity for a direct vote, Oregon voters chose to retain a balanced approach and raise taxes on themselves rather than make additional cuts that would decrease funding for education, health care and other essential services.

Oregon’s voters truly understand the importance of a balance during difficult economic times.

So, what does this mean for Iowa? For one, the Oregon vote remarkably reflects the results of a survey of Iowa voters last fall.

That survey for the Iowa Fiscal Partnership found that Iowa voters favor a balanced approach to addressing further budget problems:

■     Six in 10 favor some increase in taxes and fees rather than making cuts alone.
■     By the same ratio, Iowa voters believe the wealthiest Iowans — those earning over $250,000 per year — and big corporations pay less than they should in taxes.

The situation is complicated, and Iowa voters recognize that using budget cuts or tax increases alone will not solve our balance problem.

Oregon’s unemployment rate is 11 percent, compared to Iowa’s 6.6 percent. Oregonians understand that a budget has two sides, and a balanced approach to spending and revenue assures a responsible way to protect critical services in difficult economic times.

Posted by Christine Ralston, Research Associate


* Federation of Tax Administrators website, http://www.taxadmin.org/fta/rate/sales.html (accessed on January 29, 2010). The other states are Alaska, Delaware, Montana and New Hampshire.

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