Raising debate about a raise

The minimum wage matters. The only problem is, it doesn’t matter enough.

$10.10vs$7.25At the Iowa Policy Project, we deal with numbers — a lot. And the numbers matter — but only because those numbers affect people.

On no issue is that more important than the minimum wage.

As we all know, Iowa’s minimum wage is $7.25 an hour. It’s pathetic. (We’ll show why in a moment.)

It’s important to remember, Iowans considered $7.25 something of a triumph when it passed — seven years ago.

When it took effect a few months later, on Jan. 1, 2008, it put Iowa ahead of most of the country. It took another year and a half for the federal minimum wage to reach that level.

In the meantime, costs kept going up. And both the U.S. and Iowa minimum wage stayed the same. So the real question is not whether the minimum wage should rise. It’s: “How much?”

Certainly the $10.10 proposed by Senator Tom Harkin and others is a good start. It chips away at the bills. But let’s not lose sight of the fact that even then, people will be working full time in jobs that do not pay enough for them to get by.

Peter Fisher and Lily French show why with their “Cost of Living in Iowa” research for IPP. For example, in Linn County and the Cedar Rapids area, if you make $7.25 an hour and work a full-time job 50 weeks a year, you make $14,500 before taxes. As our analysis shows:

•  In Linn County, you need more than that whether you are single or married with kids.

•  In the Cedar Rapids metro area — covering Linn, Benton, Jones, Iowa and Cedar counties — a single mom with one child needs to make $20.17 an hour. For a married couple with two kids, the family-supporting wage is $16.43 for each parent. And for all other families with kids, a parent needs to make over $20 an hour.

So the minimum wage matters. The only problem is, it doesn’t matter enough.

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Owen-2013-57Posted by Mike Owen, Executive Director

We promise: We won’t cook burgers

In the real world, choices for working people in Iowa are often about how to make ends meet when income falls short. The McDonald’s/VISA plan is not realistic for a single person living alone. Add child-related expenses and — whoa! — there’s a fire in the kitchen!

Mike Owen
Mike Owen

So, McDonald’s and VISA have teamed up to tell low-wage workers how to make ends meet.

We have a proposal for McDonald’s and VISA: Leave economic and policy analysis to us, and we won’t compete with you on burgers and debt.

The McDonald’s/VISA plan is ironic on two fronts.

First, McDonald’s is an example of a low-wage employer — the folks who have profited mightily while their employees have not. In fact, the McDonald’s/VISA plan expects the worker to have two jobs, to make ends meet on an unrealistically low budget and have money left over — “spending money,” the plan happily calls it. That “spending money” would have to cover all food, among other things.

As Iowa Policy Project research has shown, the cost-of-living assumptions by McDonald’s are too low. A bare-bones budget for a single person in Iowa with no kids is just over $20,100 (2011 figures), requiring a job that pays about $24,000 before taxes. It assumes absolutely nothing for eating out (even at McDonald’s), let alone saving for school or retirement.

Second, McDonald’s/VISA doesn’t assume any cost of consumer credit for debt incurred, other than a car payment. VISA depends upon low- and middle-income folks taking on debt and seeing it pile up. Sometimes it’s consumer debt, but debt also can come from health-care out-of-pocket costs when your budget is on the edge. This is a very real cost for low- and middle-income families, and it can be made even worse with predatory lending practices that are dealt with feebly by state and federal lawmakers.

McDonald’s/VISA’s tortured compilation of expenses, it should be noted, comes fairly close to the one-person, total basic-needs budget we computed for 2011 — but a single person without kids would not come close to making that total budget by following the McDonald’s/VISA plan. Add child-related expenses, and — whoa! — there’s a fire in the kitchen!

McDonald’s and VISA also include some handy money-saving tips in their brochure to help low-wage workers get by, like riding your bike to work. How about these tips for saving money: Don’t eat out, and tear up your VISA card.

Click here to see how our researchers — Peter Fisher, Lily French and Noga O’Connor — came up with our numbers. Setting money aside for savings? Not possible. Health insurance at $20 a month? Actual insurance and out-of-pocket costs are far greater. The idea of having “spending money” left over? Laughable at best.

From “The Cost of Living in Iowa,” on IPP website
From “The Cost of Living in Iowa,” on IPP website

But none of this is funny. It illustrates that in the real world, choices for working people in Iowa are often about how to make ends meet when income falls short. And that is the situation for about three-fourths of single-parent families and about 23 percent of all families in our state.

Instead of assuring better ways to boost income, including a higher minimum wage, much of the public policy discussion is focused on cutting back supports such as food and energy assistance, not to mention Social Security, and holding down child-care assistance. We don’t seem to recognize the need for a living wage, however that may be computed. In the end, are we even willing to support a low-wage economy?

Posted by Mike Owen, Executive 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